Major European Markets Close Higher After BoE Intervenes In Bond Market

The major European stocks closed higher on Wednesday, as investors reacted positively to the Bank of England's announcement that it would suspend its U.K. gilt selling next week and engage in temporary purchase of long-dated bonds for a couple of weeks, aiming to calm the market that has taken a hit after the government's mini-budget.

Stocks tumbled earlier in the session amid mounting fears the aggressive monetary tightening by central banks might hurt growth and push global economy into a recession.

Weak consumer sentiment readings from Germany and France, and geopolitial worries weighed as well.

The pan European Stoxx 600 ended 0.3% up. Germany's DAX gained 0.36%, France's CAC 40 moved up 0.19% and the U.K.'s FTSE 100 ended higher by 0.3%, while Switzerland's SMI surged 0.66%.

However, most of the other markets in Europe closed on a negative note. Austria, Belgium, Czech Republic, Greece, Iceland, Ireland, Netherlands, Norway, Poland, Portugal and Turkiye ended weak.

Denmark, Finland, Russia and Sweden closed higher, while Spain settled flat.

In the UK market, Land Securities surged nearly 7%. Segro, British Land, Burberry Group, Fresnillo, Ashtead Group, Endeavour Mining, Persimmon, Anglo American Plc, Barratt Developments, Melrose Industries, Antofagasta and Centrica gained 2 to 6%.

Airtel Africa, M&G, Legal & General, Aviva, Rolls-Royce Holdings, Sainsbury (J), Standard Chartered, Ocado Group, Lloyds Banking Group and Barclays lost 3 to 7%.

In the French market, CapGemini surged nearly 4%. Schneider Electric, Renault, Hermes International, Accor, Legrand, Sanofi, Air Liquide, LVMH and Essilor gained 1.5 to 2.5%.

Societe Generale, ArcelorMittal, BNP Paribas, WorldLine, Credit Agricole and STMicroElectronics lost 2.5 to 4.3%.

In the German market, Deutsche Wohnen climbed more than 4.5%. Vonovia surged 3.6%, while Zalando, Merck, Brenntag, Puma and Adidas ended higher by 2.3 to 3%.

HelloFresh and Deutsche Bank both lost more than 3%. Allianz and Sartorius also ended sharply lower.

The Bank of England today decided to intervene in the government bond market to reduce any risks from contagion to credit conditions for the real economy, following the chaos developed in the currency and gilt markets after the government's massive tax cuts announced in the 'mini-budget' last Friday.

The UK government also came under pressure from the International Monetary Fund that in a rare move, voiced criticism against the tax cuts and the fiscal package.

The bank said it is monitoring developments in the financial markets very closely, as announced at the start of the week, in light of the significant repricing of UK and global financial assets.

"This repricing has become more significant in the past day - and it is particularly affecting long-dated UK government debt," the BoE said in a statement on Wednesday.

"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability."

That would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy, the central bank warned.

In order to restore market functioning and avert the risk of contagion, the bank decided to undertake temporary purchases of long-term government bonds from September 28.

The purchases will be carried out on whatever scale that is necessary to restore orderly market conditions, the central bank added.

The "temporary and targeted" purchases will be fully indemnified by HM Treasury.

The bank stressed that the purchases in the gilt market would be "will be strictly time limited" and are meant to tackle a specific problem in the long-dated government bond market.

In addition, the BoE postponed the selling of bonds held under the quantitative easing program to October 31, which was initially due to commence next week.

The MPC's annual target of an GBP 80 billion stock reduction is unaffected and unchanged, the bank said.

On the economic front, the German consumer confidence index plunged to -42.5 in October from revised -36.8 in the previous month, survey results from the market research group GfK showed. The score was weaker than the economists' forecast of -39.0.

The French consumer confidence index fell to 79.0 in September from 82.0 in August, the statistical office Insee said. Economists had forecast the index to fall to 80.0.

For comments and feedback contact: editorial@rttnews.com

Follow RTT