The pan-European Stoxx 600 index was down 0.05% after being down 0.8% in early deals with regional markets mixed. Britain’s FTSE 100 fell into the red, down 0.14% as official data showing the economy unexpectedly shrank in August.
Confusion reigned supreme on bond markets after the Bank of England was forced to clarify apparently contradictory statements from governor Andrew Bailey in public and unnamed officials quoted in a newspaper report about the deadline for ending the bank's emergency debt repurchase programme.
Bailey on Tuesday said pension funds who had been dumping bonds to meet collateral calls had until Friday "to get this done". However, anonymous officials told the Financial Times that the bank was prepared to go beyond the deadline if necessary.
On Wednesday the BoE was then forced to issue a statement saying it was “closely monitoring” liability-driven investment (LDI) funds ahead of the Friday deadline. It stepped in a fortnight ago to stop the fire sale of assets by LDI funds sparked by Finance Minister Kwasi Kwarteng's disastrous mini-budget.
“Carry on up Threadneedle Street: The Bank of England is suffering a form of communication breakdown that’s left everyone in the market a bit dazed and confused,” said Markets.com analyst Neil Wilson.
“It was an unhelpful remark likely to lead to more, not less, instability in the immediate term, even if Bailey is confident that the market will function fine without the backstop.”
“This morning the expected has happened and sources at the Bank are ‘privately’ briefing that of course the Bank would extend the intervention if financial stability were again at risk. Gilts were, predictably, sold at the market open, with the 30yr yield up 8bps at 4.89% before easing back. The problem is the market is still working on mixed messaging from the Bank and this will need to be resolved soon.”
In economic news, data from the Office for National Statistics showed a 0.3% contraction in the UK economy unexpectedly against expectations for 0% growth and following a positive reading of 0.1% in July.
In equity news, shares in UK housebuilder Barratt Developments (LON:BDEV) fell sharply after the company said new home sales had fallen due to soaring interest rates and a lack of mortgage availability. The news hit fellow builders Persimmon (LON:PSN), Vistry and Bellway (LON:BWY).
Philips plunged 12% as the Dutch health technology company said its quarterly core profit would drop around 60%, and it signalled a huge charge on the value of its plagued sleep and respiratory care business.
Credit Suisse (SIX:CSGN) fell after Bloomberg reported the US Justice Department was investigating whether the Swiss lender continued helping US clients hide assets from authorities, eight years after it paid a $2.6bn tax evasion settlement.
Reporting by Frank Prenesti for Sharecast.com
