US Stocks Rally; Treasuries Jump After BOE’s Plan: Markets Wrap

(Bloomberg) -- The Bank of England became the latest authority to stage a market intervention, boosting UK bonds in a move that spilled over into the US stock and Treasury markets.

The S&P 500 climbed as much as 1.8%, rising for the first time since the Federal Reserve boosted rates and turned ever-more hawkish a week ago. The 10-year US Treasury yield dropped toward 3.73% after piercing 4% earlier. The yield on 30-year UK gilts plummeted more than one percentage point. Oil advanced with metals. Orange juice futures spiked as Hurricane Ian headed for Florida’s gulf coast and rapidly gained strength. 

Global markets enjoyed a respite from the brutal selling that has gripped them since the Fed embarked on the most aggressive path of interest-rate hikes by since the 1980s. The Bank of England calmed nerves after it said it would buy long-dated government bonds in whatever quantities were needed to end the chaos caused by the government’s plans to slash taxes. 

Fed officials remained diligent in warning that more rate-hike pain is yet to come, with Atlanta Fed President Raphael Bostic reinforcing the hawkish stance his colleagues have been hammering home all week.

“All eyes are on inflation and interest rates, and this renewed hawkishness or more aggressive hawkishness from the Fed has certainly sent equity markets into a period of concern here,” said Josh Emanuel, chief investment officer of investment management at Wilshire. “From this point forward, equities are really going to take their cues from bond market. So if you see bond yields move lower, that is a good sign for equities.”

Stocks may also be rising because the markets have priced in the Fed’s hawkishness, according to Adrian Helfert, chief investment officer of multi-asset strategies at Westwood Holdings Group.

“It’s harder for the central bank and the speakers to say much more -- short of saying that they’re going to start hiking by a hundred basis points for the next several meetings,” he said. “Maybe the market is at least now believing what the Fed is saying.”

Geopolitical tensions continued to simmer. Natural gas prices in Europe surged after Russia said it may cut off supplies via Ukraine and the German Navy was deployed to investigate the suspected sabotage to the Nord Stream pipelines. While the European Union proposed a new round of sanctions on Russia, the growing exodus of Russians fleeing President Vladimir Putin’s mobilization order is creating turmoil at the borders with neighboring states and stirring fears about potential instability. 

The dollar dropped on Wednesday. But its recent rally brought losses to other currencies, including the euro and onshore yuan, which tumbled to its weakest level since 2008. A regulatory body guided by the People’s Bank of China urged banks to protect the authority of the yuan fixing.

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Key events this week:

• Fed’s Charles Evans speak at an event, Wednesday
• Euro zone economic confidence, consumer confidence, Germany CPI, Thursday
• US initial jobless claims, GDP, Thursday
• Fed’s Loretta Mester, Mary Daly speak at events, Thursday
• China PMI, Friday
• Euro zone CPI, unemployment, Friday
• US consumer income , University of Michigan consumer sentiment, Friday
• Fed’s Lael Brainard and John Williams speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.6% as of 1:30 p.m. New York time
• The Nasdaq 100 rose 1.4%
• The Dow Jones Industrial Average rose 1.6%
• The MSCI World index fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 1%
• The euro rose 1.5% to $0.9734
• The British pound rose 1.4% to $1.0882
• The Japanese yen rose 0.5% to 144.05 per dollar

Cryptocurrencies

• Bitcoin rose 2.7% to $19,589.64
• Ether rose 0.7% to $1,334.02

Bonds

• The yield on 10-year Treasuries declined 21 basis points to 3.73%
• Germany’s 10-year yield declined 11 basis points to 2.12%
• Britain’s 10-year yield declined 49 basis points to 4.01%

Commodities

• West Texas Intermediate crude rose 3.8% to $81.50 a barrel
• Gold futures rose 2.1% to $1,670.20 an ounce

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