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BoE Bond Market Intervention Contributes To Recovery Rally On Wall Street

wallstreet july27 28sep22 lt

After moving sharply lower over the past several sessions, stocks showed a substantial rebound during trading on Wednesday. The major averages all showed strong moves back to the upside, with the Dow and the S&P 500 bouncing off their lowest closing levels since late 2020.

The major averages pulled back off their highs of the session going into the close but held on to significant gains. The Dow surged 548.75 points or 1.9 percent to 29,683.74, the Nasdaq skyrocketed 222.13 points or 2.1 percent to 11,051.64 and the S&P 500 spiked 71.75 points or 2.0 percent to 3,719.04.

The rally on Wall Street reflected a positive reaction to the Bank of England's plans to begin temporarily purchasing long-dated U.K. government bonds to address dysfunction in the gilt market.

The BoE said the purchases would be carried out on "whatever scale is necessary" to restore orderly market conditions.

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

The moves come as U.K. bond yields have spiked after the government revealed its mini-budget including significant unfunded tax cuts.

Long-term U.K. bond yields have pulled back following the news, while U.S. treasury yields also moved sharply lower after surging in recent sessions.

The yield on the benchmark ten-year note showed a steep drop after briefly topping 4.0 percent for the first time in over twelve years.

Stocks also benefited from a significant pullback by the U.S. dollar, with the U.S. dollar index tumbling by 1.2 percent. The greenback had recently reached new 20-year highs.

Sector News

Gold stocks showed a substantial move to the upside on the day, resulting in a 7.0 percent spike by the NYSE Arca Gold Bugs Index.

The rally by gold stocks came amid a sharp increase by the price of the precious metal, as gold for December delivery surged $33.80 to $1,670 an ounce.

A significant increase by the price of crude oil also contributed to considerable strength among energy stocks, with the Philadelphia Oil Service Index and the NYSE Arca Oil Index soaring by 5.5 percent and 5.2 percent.

Housing stocks also turned in a strong performance on the day, driving the Philadelphia Housing Sector Index up by 4.3 percent.

The index bounced off a three-month closing low even though the National Association of Realtors released a report showing pending home sales fell by more than expected in the month of August.

Biotechnology, retail and networking stocks also showed notable moves to the upside, reflecting broad based strength on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved sharply lower during trading on Wednesday. Japan's Nikkei 225 Index tumbled by 1.5 percent, while Hong Kong's Hang Seng Index plunged by 3.4 percent.

Meanwhile, the major European markets showed modest moves to the upside on the day. While the French CAC 40 Index edged up by 0.2 percent, the U.K.'s FTSE 100 Index rose by 0.3 percent and the German DAX Index climbed by 0.4 percent.

In the bond market, treasuries showed a substantial rebound after falling sharply in recent sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, plunged by 25.9 basis points to 3.705 percent.

Looking Ahead

A report on weekly jobless claims may attract some attention on Thursday, although traders are likely to keep a closer eye on activity in the bond and currency markets.

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