Bank of England intervention shakes investors
Weak jobs data and another Bank of England (BoE) intervention sparked fresh fears for investors, pushing European stock markets into the red on Tuesday.
The FTSE 100 dropped 0.8% in London by midday, with miners, retailers, and banks leading the way down, while the CAC fell 0.5% in Paris, and the DAX was 0.8% lower in Frankfurt.
Unemployment dropping to its lowest level since 1974 caught us by surprise.
According to the Office for National Statistics (ONS), the number of adults seeking jobs dropped in the last months from 3.6% to 3.5%.
Despite the fact that average pay growth excluding bonuses accelerated to 5.4%, this still stands at around half the rate of inflation.
The BoE has been forced to make another bond market intervention after a record sell-off on Monday.
The FCA said that “dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.”
According to Russ Mould, investment director at AJ Bell, the Bank of England’s decision to purchase index-linked gilts as part of its government bond support programme will only serve to increase investors’ concerns.
Despite its efforts to keep a lid on gilt yields, the government has had to pay higher borrowing costs in recent sessions as yields continue to creep up.
The pound plunged as much as 0.5% against the dollar after the news, trading below $1.10, before recovering some ground.
The Bank of England has intervened again because of the ‘material risk’ to UK financial stability.
According to Michael Hewson of CMC Markets, the British government must now demonstrate to the financial markets that it is capable of dealing with the issues at hand without making them worse, and that is a question that is still open because borrowing costs have risen across the board, although the situation is not unique to Britain at the moment.
“The Chancellor’s new budget is set to be released on October 31, and bond markets are expected to remain volatile until then.
S&P 500 futures dropped 0.5% before the bell in New York, while Dow and Nasdaq futures fell 0.4%.
According to Jamie Dimon, the CEO of JP Morgan (JPM), several economic headwinds, including rising rates, surging inflation, Fed tightening, and the Ukraine conflict, are hampering the United States economy.
In six to nine months, he foresaw a US recession, and he predicted that the S&P 500 would drop another 20% , creating panic in the credit markets.
Global growth concerns and rising interest rates are causing US equities to decline for a fourth straight day, resulting in Shares Asia’s decline as well.
The Hang Seng fell 2.2% on Friday, pushing the index below 17,000 points for the first time since late 2011 in Hong Kong.
The chipmaking industry led the declines as trading resumed after the holidays, in the wake of fresh restrictions on China’s access to US technology.
The Shanghai Composite index increased by 0.2%.
The dollar’s strength against other major currencies was near its highest level this month, and the Japanese yen was trading near its original level, which prompted Japanese authorities to defend the currency in September.
