After losses of up to 2%, the stock markets recovered. London closed up 0.30%, Frankfurt 0.36%, Paris 0.19%, while Milan lost 0.52%.
Calm returned to the markets on Wednesday, following exacerbated volatility observed following the announcement of an intervention by the Bank of England to calm tensions on the bond market.
The Bank of England (BoE) intervened by buying government bonds to “restore normal market conditions”, considering that the movements of the bond market in recent days might constitute a “real risk for the financial stability of the United Kingdom. United”.
“It’s not a massive asset purchase program, but its action is seen as a positive sign, especially given its wait-and-see attitude earlier in the week,” said IG analyst Chris Beauchamp.
In immediate reaction, rates eased. The British ten-year rate fell to 4% around 4:10 p.m. GMT and that of thirty years even fell from 5.11%, a highest since 1998 reached on Wednesday morning, to 3.92% around 4:10 p.m. GMT.
Since the presentation of the British government’s “mini-budget”, British bond rates had jumped, rising in two sessions from 3.5% to 4.5% for the ten-year rate, which hit its highest since 2008.
After losses of up to 2%, European stock markets also recovered. London gained 0.30% at the close, Frankfurt 0.36%, Paris 0.19%, while Milan lost 0.52%. In Switzerland, the flagship SMI index gained 0.93% at the close.
They were helped by the positive opening of Wall Street. Around 4:10 p.m. GMT, the Dow Jones gained 1.38%, the Nasdaq 1.43% and the S&P 500 1.51%.
Another beneficiary, the pound sterling rose to 1.0848 dollars (+ 1.06%), following a sharp decline in the middle of the session and a historic low reached on Monday at 1.0350 dollars.
“At least the BoE is now doing something…even if it’s only blaming financial market volatility, not the government’s fiscal policy directly for the turmoil,” said Markets.com analyst Neil Wilson. .
“The markets have reacted well but basically, we know that when we increase the money supply mechanically we develop inflation”, underlines Philippe Cohen, portfolio manager at Kiplink Finance, recalling the country is already experiencing price increases of 10 %.
The change in the trend of borrowing rates extended to other government bonds: following breaking records of more than ten years for France, or fifteen years in the United States, yields on ten-year bonds fell compared to the day before.
On the foreign exchange market, the volatility did not only affect the pound sterling. The dollar was down once morest major currencies following hitting a high since mid-2002 once morest the euro, and a record high since 2010 once morest the yuan.
Around 4:10 p.m. GMT, the euro recovered 1.07% to 0.9697 dollars.
Konstantin Oldenbuerger of CMC Markets adds that “speculation around gas pipeline leaks, including fears of a war on European energy infrastructure, has weighed”. The European Union evokes “sabotage” of the Nord Stream gas pipelines.
On the benchmark market, the Dutch TTF, the price of European natural gas peaked at 212 euros per megawatt hour on Wednesday morning. Around 4:10 p.m. GMT, it was worth 207 euros, up 10.16% compared to the previous day.
Oil prices rose: the barrel of American WTI for delivery in November advanced by 3.77% to 81.41 dollars, that of Brent from the North Sea by 3.06% to 88.91 dollars.
Banks fall with rates
Shares of European banks recorded notable losses in the wake of falling rates in the bond market, which is likely to erode their margins.
In Paris, Societe Generale dropped 4.35% and Crédit Agricole 3.06%. In London, Barclays fell 3.05% and Lloyds 3.31%. Commerzbank lost 3.71% and Deutsche Bank 3.37% in Frankfurt. As did Unicredit (-1.63%) in Milan, while US and Swiss banks were up.
