- FTSE 100 recovers from early falls to dip 2 points
- Bank switches tack and plans bond buying
- Burberry boosted by director appointment
2.56pm: Markets continue to recover
Back in the UK, and leading shares are attempting a full recovery from the day's losses.
The FTSE 100 is now down just 2.6 points at 6981.99, having earlier fallen to 6836.
The pound too has come back from its worst levels, but is still down 0.53% at US$1.0671.
As for gilt yields, the 30 year is down 100 basis points at 3.925% while the 10 year is 45 basis points lower at 4.05%.
2.45pm: Wall Street makes mixed start
US stocks opened mixed as recession fears continued to cast a shadow over investor confidence.
Just after the open, the Dow Jones Industrial Average was up 80 points or 0.3% at 29,283 points, the S&P 500 was up 8 points or 0.2% at 3,655 points, and the Nasdaq Composite was down 9 points or 0.1% at 10,821 points.
Biopharmaceutical company Mind Medicine Inc tanked more than 52% after the company announced a proposed public offering on Tuesday.
Apple was down about 3% at the open on reports the company was easing off plans to increase production of the new iPhone 14 after demand failed to meet expectations.
On the other hand, Biogen Inc (NASDAQ:BIIB) stock had jumped about 40% following positive results from a clinical trial involving the company's experimental Alzheimer’s drug which found the drug slowed the progress of Alzheimer’s by 27% compared to a placebo.
2.10pm: Recall parliament and abandon budget - Starmer
The Labour leader has called for parliament - which is in recess for party conferences - to be recalled in the wake of the turmoil in the markets following the mini-budget.
Sir Keir Starmer told reporters at Labour's conference in Liverpool that the Bank's bond buying programme was a very serious matter.
He said: "The government has clearly lost control of the economy.
"What the government needs to do now is recall parliament and abandon this budget before any more damage is done."
The government has lost control of the economy. It’s going to mean higher mortgages and higher prices.And what for?
Unfunded tax cuts for the one per cent.
They must recall parliament today and abandon this act of economic self-harm.
— Keir Starmer (@Keir_Starmer) September 28, 2022
2.03pm: Bank to buy £5bn of gilts per auction
The Bank of England has given more details of its proposed gilt purchases
It said: "Given current market conditions, the Bank stands ready to purchase conventional gilts with a residual maturity of more than 20 years in the secondary market, initially at a rate of up to £5 billion per auction. These parameters will be kept under review in light of prevailing market conditions...
"The first auction will be conducted on Wednesday 28 September between 3pm - 3.30pm.
"Subsequent auctions will be conducted on each week day from 28 September 2022 to 14 October 2022, between 2.15pm - 2.45pm."
1.06pm: Pension funds and asset sales
More on the situation for pension funds, from Torsten Bell, chief executive of the Resolution Foundation.
Few journalists calling asking about "pension funds going bust"/"is this a financial crisis". The basic answer is no - higher rates IMPROVE the position of most pension funds BUT because of how they hedge against interest rate changes they now need to find a lot of cash quickly— Torsten Bell (@TorstenBell) September 28, 2022
Which they are (unsurprisingly given the largely unconditional commitment by the BoE which is underwritten by HMT - just in case we didnt have enough fiscal risk already) https://t.co/QJ7oU4WSHM— Torsten Bell (@TorstenBell) September 28, 2022
12.56pm: Downside risks to UK economy growing - economist
The pound is back under pressure despite the Bank of England's intervention in the bond market.
Fears about the UK economy are growing and the Bank's move to "avoid material risk to UK financial stability" may not be the last.
Sterling is down 1.47% at US$1.057 and off 1.07% against the euro to €1.1057.
But gilt yields continue to fall, with the 30 year down 44 basis points at 4.53% and the 10 year 35 basis points lower at 4.15%.
Meanwhile the FTSE 100 has lost some ground again and is now down 62.12 points or 0.89% at 6922.47.
Paul Dales, chief UK economist at Capital Economics, said: "The continued fallout this morning from the Chancellor’s mini-budget has forced the Bank of England to step in to avoid the early stages of a financial crisis. It has postponed its plan to sell some gilts and pledged to buy as many long-term gilts as needed. Long-term gilts yields are already falling back. But the overall sense is that the downside risks to the UK economy are growing.
"Less than a week ago the Bank said there was a “a high bar for amending the planned reduction in the stock of purchased gilts”. We now know what that bar was – a mini-budget that resulted in 30-year gilt yields rising from 3.60% to 5.10%, which threatened financial stability by forcing pension funds to sell assets into a falling market in order to meet cash collateral requirements...
While [the Bank's move] is welcome, the fact that it needed to be done in the first place shows that the UK markets are in a perilous position. It wouldn’t be a huge surprise if another problem in the financial markets popped up before long. Either way, the downside risks to economic growth are growing. And the Chancellor’s 2.5% real GDP growth target is looking even more unachievable."
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV), said: "The move that bank officials have made to step in now, just two days after it indicated it would wait until November, smacks of a bit of panic and also of frustration that the government appears to be digging in its heels, reluctant to perform a political U-turn. Instead, the Bank of England has been forced to pursue a monetary U-turn, an abrupt change of policy as the Bank’s monetary policy committee had been pursuing a policy of selling down the Bank’s bond holdings.”
12.10pm: Bank's move could presage early rate rise
The Bank of England's decision to intervene in the markets mean a rate rise before its next meeting is more likely, analysts believe.
Joshua Raymond of XTB.com said: "This is a significant step by the Bank of England. The UK central bank first tried words, which failed. Now it tries to intervene in bond markets to bring yields back under control
"On the one hand, this might bring some reassurance to the market that the BoE is ready to act outside of its scheduled meetings. This means it's now much more likely we will see major interest rate hikes before the next MPC meeting in November.
"Yet on the other hand, the Bank of England is applying plasters on the financial wounds created by the Truss government who have shown no hint at reversing policy. So until that happens, the question remains how much further will the BoE be forced to intervene further and over what time period? Time will tell."
Naeem Aslam, chief market analyst at Avatrade, said: "The initial announcement has brought some relief in the UK gilt market, but sterling has become even more volatile. Now, the anticipation is that if the current move doesn’t bring a temporary stop to the current bleed, the next step will be the un-scheduled announcement of an interest rate hike."
Neil Wilson at Markets.com believes the Bank should have acted sooner. He said: "The question is whether this acts to stabilise longer-term or if the market retests the Bank’s resolve. We’re now seeing the Bank go toe-to-toe with the market and this might not lead to any decrease in volatility.
"We know now where the BoE’s pain point is and the market is wont to test these. Moreover, coming so soon after Monday’s statement (which I said was inadequate) it again reeks of a lack of credibility. At least the BoE is now doing something…even if it’s only blaming volatility in financial markets and not directly blaming the fiscal policy of the government for the dislocations."
11.53am: Wall Street set to slide again
Over in the US, stocks are expected to retreat further, continuing falls from last week as investors expect the economy to falter under the weight of the Federal Reserve’s aggressive interest rate increases.
Futures for the Dow Jones Industrial Average were down 0.9% in pre-market trading, while those for the S&P 500 shed 1.2%, and contracts for the Nasdaq-100 were 1.6% lower.
All three indices have now slipped into bear market territory, roughly defined as levels around 20% lower than recent highs. Meanwhile, the dollar continues to strengthen across the board and yields on US Treasuries have risen.
Share prices have been falling since the middle of last week when the Federal Reserve delivered its third straight 75 basis point interest rate increase and signaled that it will continue raising rates to tackle runaway inflation.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank noted that the hawkish talk from rate setters has not dissipated.
She cited James Bullard, president of the Federal Reserve Bank of St. Louis, who was quoted as saying that he sees interest rates going to the 4.5% range, which is a full percentage point higher than projected back in April, and Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, normally a dovish Fed member, saying that the Fed moves are ‘appropriately’ aggressive.
“Squeezing the world economy like a lemon may not be the greatest idea, and going this fast given the world context – the war, the energy crisis – will not make up for the fact that the Fed waited too long before acting against inflation last year,” Ozkardeskaya said.
“So, it is well possible that after having wrongly insisted that inflation was ‘transitory’, the Fed could now make a second big mistake of tightening beyond appropriate,” she added.
Russia’s continuing aggression in Ukraine and the ensuing energy crisis are some of the main factors for rising price pressures. Turmoil in currency markets, with the pound dropping sharply while the dollar continues to rise, is also adding to the overall gloom.
11.43am: Treasury comments on Bank's action
Here's a statement from the Treasury on the Bank of England's move.
Statement from @hmtreasury on this extraordinary bank intervention.Pointedly it doesn’t acknowledge the blindingly obvious - that this dysfunction is a direct consequence of their actions.
Instead it’s: “Global financial markets have seen significant volatility in recent days.” pic.twitter.com/AgvVyOU7qs
— Ed Conway (@EdConwaySky) September 28, 2022
11.31am: Bank's move supports shares and gilts
Leading shares are recovering after the dramatic intervention by the Bank of England.
The FTSE 100 is now down 31.83 points or 0.46% at 6952.76, having earlier fallen as low as 6836.
Meanwhile the pound is down 0.21% at US$1.0705, off its low of US$1.0626.
In the gilt market, yields on the 10 year are down 51 basis points at 4.007%. Earlier they were as high at 4.6%.
We have seen the first policy reversal in the current UK economic crisis. The @bankofengland is switching from selling bonds (QT) to market interventions to buy bonds. Many other policy reversals by the gov’t to come I suspect.— Andrew Sentance (@asentance) September 28, 2022
11.17am: Bank to do whatever it takes
The Bank of England has stepped in to intervene in the gilt market to avoid "a material risk to UK financial stability."
It will carry out temporary purchases of long dated government bonds from today until 14 October.
It said: "As the Governor said in his statement on Monday, the Bank is monitoring developments in financial markets very closely 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. Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.
"In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses.
"To achieve this, the Bank will carry out temporary purchases of long-dated UK government bonds from 28 September. The purpose of these purchases will be to restore orderly market conditions. The purchases will be carried out on whatever scale is necessary to effect this outcome. The operation will be fully indemnified by HM Treasury."
It said its plan to reduce its stock of bonds by £80bn annually is unchanged. But it added: "In light of current market conditions, the Bank’s Executive has postponed the beginning of gilt sale operations that were due to commence next week. The first gilt sale operations will take place on 31 October and proceed thereafter."
The move has seen yields on the 30 year gilt fall by 24 basis points to 4.738%. Earlier they had jumped to 5.093%.
An emergency intervention by the Bank of England - buying government debt itself - because of a political intervention, the first of a new government, that went wrong is .... quite something— Sam Coates Sky (@SamCoatesSky) September 28, 2022
10.16am: Kwarteng to meet bankers
Things really are going well.
"Kwasi Kwarteng will ask financiers not to bet against the pound during a meeting with bankers today, Sky News reported on Wednesday."Okay but he'd better say please
— Andy Bruce (@BruceReuters) September 28, 2022
UK Treasury Source Dismisses Media Report Kwarteng Will Ask Banks Not To Bet Against Sterling - RTRS— LiveSquawk (@LiveSquawk) September 28, 2022
9.35am: Cash or shares?
The slide in the market has eased somewhat, but that is about all you can say.
The FTSE 100 is now down 80.38 points or 1.15% at 6904.21.
Earlier it fell as low as 6836, its lowest intra-day level since March.
The selling is across the board, but a fair few fallers are financial stocks on concerns about the effect of higher interest rates on the economy and thus their earnings.
Legal & General Group PLC is 5.78% lower and Aviva PLC (LON:AV) is down 5.38%. But the biggest faller at the moment is Airtel Africa PLC (LSE:AAF) off 6.1%.
Higher interest rates may also be having another effect.
Russ Mould, investment director at AJ Bell, said: "“The market will be reassessing the growth prospects for businesses, with share price declines reflecting the growing likelihood for earnings downgrades. Some investors may even have become too scared to hold a lot of equities and might be trimming holdings in favour of increasing cash positions, given the prospect of much greater rates on savings accounts.”
Meanwhile the pound is showing little signs of recovery.
Against the dollar it is down 0.549% at US$1.0669 while it is 0.2% lower against the euro at €1.1155.
9.22am: Rate rises set to hit housing market
Bad news for home owners.
In the wake of surging UK gilt yields, rising interest rates and lenders pulling hundreds of mortgage deals, experts are predicting hefty falls in house prices.
Ray Boulger of mortgage broker John Charcol has forecast a 10% drop in prices next year, while analysts at Credit Suisse (SIX:CSGN) say they could fall by up to 15%.
Boulger told the Today programme on Radio 4: "Whilst at the moment I don't think we're going to see many forced sellers... it's certaintly going to have an effect on people's ability to buy."
Capital Economics' Andrew Wishart also warned of a sharp fall in prices. He said: "The rise in market interest rates that has already happened will push up mortgage rates to at least 6% and reduce the size of loans that lenders can offer.
"The resulting drop in buying power makes a significant drop in house prices inevitable."
1 millon people remortgage their homes each year. Their monthly costs are about to leap, making the risks of a serious property price crash much more likely. (1/3)https://t.co/bUyLtWte6U pic.twitter.com/tLUYLpefym— George Hammond (@GeorgeNHammond) September 28, 2022
8.40am: Further falls for Footsie
There is little let up in the selling, with leading shares now down more than 2%.
The FTSE 100 has fallen 147.76 points to 6836.83, with barely a riser in the index.
Other markets are also on the slide, with Germany's Dax down 1.33% after worse than expected consumer confidence figures.
German Gfk Consumer Confidence Oct: -42.5 (est -39.0; prevR -36.8)— LiveSquawk (@LiveSquawk) September 28, 2022
Craig Erlam, senior market analyst at Oanda, said: "It would appear we're in for another day of risk-off trade, with parts of Asia recording heavy losses and Europe opening on the backfoot.
"Fear of tightening-induced recessions has wiped out the recovery we saw in stock markets over the bulk of the summer as investors were once again burned by an over-eagerness to catch the bottom in the market despite there being little evidence of it being justified.
"That fear has now gripped the markets and we may see a little more caution going forward as the Fed has made clear that one inflation reading doesn't make a trend and it will take a lot more than that to convince it that it can afford to ease off the brake. Other central banks may have a lot more work to do; one in particular springs to mind, thanks to the misguided direction the government is taking the country in."
Who could he mean? Oh yes.
"The negative response to the UK's "mini-budget" has continued with the IMF adding their voice to the chorus of scathing attacks on the country's fiscal plans. It appears everyone is unusually united in their objection to the Treasuries tax-cutting plans at a time when inflation is almost 10% and rising," he said.
The fallers include industrial companies, financial firms and housing businesses on concerns about the effect of higher mortgage rates and financing costs, and of course, the prospect of recession (which the Bank of England reckons we may already be in.)
Rolls-Royce Holdings PLC (LON:RR) is down 5.19%, Legal & General Group PLC (LON:LGEN) has lost 4.5% and Aviva PLC (LON:AV) is down 4.45%. HSBC Holdings PLC (LON:HSBA) has fallen 3.88% and Rightmove PLC (LON:RMV) is off 3.56%.
On the positive side, it must be nice to join a business and see its share price immediately move higher, especially in this market.
Daniel Lee has joined Burberry Group PLC (LON:BRBY) as chief creative officer, having previously worked at Celine, Maison Margiela, Balenciaga and Donna Karan.
Lee replaces Riccardo Tisci who is stepping down.
Burberry shares are up 3.12%.
8.12am: Turmoil continues as global worries add to budget failure
Leading shares have opened sharply lower as the turmoil following the widely criticised mini-budget continues.
After closing below 7000 for the first time since March this year, the FTSE 100 has fallen another 81.47 points or 1.17% to 6903.12.
As well as the little local difficulty facing the chancellor and prime minister, there are other global concerns.
Possible sabotage on the gas pipelines between Russia and Europe is a matter of some concern, while the conflict in Ukraine could get worse following the results of Russia's referenda in certain regions of the country.
Jim Reid at Deutsche Bank (ETR:DBKGn) said: "Results from Russia’s referendum in four Ukrainian territories unsurprisingly revealed lopsided votes in favour of Russian annexation, topping 85% in each of the regions. That stoked fears that Russia will move to officially annex the territories as soon as this week, thereby claiming any attack on those territories is an attack on sovereign Russia itself and enabling yet further escalation.
"President Putin is scheduled to address both houses of the Russian Parliament this Friday, which British intelligence reports may be used as a venue to push through an official annexation ratification."
On the corporate front, sentiment has not been helped by reports that Apple Inc (NASDAQ:AAPL) is reversing plans for a boost in iPhone production, due to waning demand.
7.47am: More pressure on sterling
The pound has fallen back on growing criticism of the Chancellor's mini-budged with its unfunded tax cuts and the prospect of hefty borrowing or swingeing spending cuts.
As well as the IMF comments on the tax moves fuelling inequality, credit ratings agency Moody's has said the cuts wer a "credit negative" and could lead to larger budged deficits and higher interest rates.
Bank of England economic Huw Pill yesterday suggested as much, saying the situation "will require a significant monetary policy response."
Whatever your view of the records of the IMF and ratings agencies, they need to be taken seriously.
This is the transmission effect for U.K. plc. Arguing over the mouthpieces risks missing impact to mortgage rates now widely in 5%-6% range, & investment grade credit at similar rates. Assuming hurdle rate unchanged (has been sticky as rates fell) this chills investment volumes— Simon French (@shjfrench) September 28, 2022
At the moment sterling is down 0.5327% at US$1.0671.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV) said: ‘’The beleaguered pound was in retreat again after the UK government was slapped by stinging criticism from the International Monetary Fund over its handling of economic policy. Sterling dropped back to $1.06 after reaching $1.08 on Tuesday after the intervention by the IMF, which warned that these deep tax cuts were not only inappropriate with inflation so high, but would fuel inequality.
"The IMF’s move has added to worries that the UK is fast taking on the characteristics of an emerging market economy, and risks ditching its developed country status. It’s now not only wracked with trade disruptions, an energy crisis and soaring inflation but it’s also being closely monitored by international body known as the world’s lender of last resort.
"UK gilt yields - the interest paid on government debt - have retreated marginally but they are still sky high, with the yield on 10-year gilts hovering around 4.4%, up my more than 340% in a year. They have hit the highest level since the financial crisis in 2008, which is piling pressure on mortgage holders, given gilt yields have an impact on swap rates, which guide lenders’ mortgage offers."
7am: Negative mood to continue
The FTSE 100 looks set to be marked down at the open following losses in the US overnight and as the IMF put further pressure on chancellor Kwasi Kwarteng criticising his recent fiscal statement.
Spread betting companies are calling the lead index down by around 43 points.
Investor sentiment was damaged further after leaks in Baltic Sea gas pipelines between Russia and Europe were found.
EU chief Ursula Von der Leyen said "sabotage" caused the leaks.
She threatened the "strongest possible response" to any deliberate disruption of European energy infrastructure.
In the US markets endured another tough session as comments from Federal Reserve policymakers showed the appetite for more interest rate increases had not dimmed, while the rising dollar also raised concerns over corporate earnings.
By the close the Dow Jones Industrial Average was down 124 points, or 0.42%, to 29,137, the S&P 500 dipped 7.7 points, or 0.21%, to 3,647 although the Nasdaq Composite bucked the trend rising 27 points, or 0.25%, to 10,830.
Asian markets were also under pressure, with the Nikkei down 1.5%.