LONDON/NEW YORK, Oct 11 (Portal) – Financial markets took a rollercoaster ride on Tuesday as the S&P 500 (.SPX) ended lower while the dollar rallied as nervous investors fled to safety after the Bank of England would support the UK bond market only still three days.
Investors had already grappled with a range of uncertainties ahead of key US inflation and earnings reports, the escalating Russia-Ukraine war and the COVID-19 cases in China.
Earlier in the day, Britain’s central bank said it would buy more bonds this week. But sentiment quickly deteriorated in late afternoon trading after BoE Governor Andrew Bailey told pension fund managers to complete rebalancing their positions by Friday, when the bank’s emergency support program for the county’s fragile bond market ended. Continue reading
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Following the comments, Wall Street stock indices fell sharply, giving back all gains in a solid recovery that had begun about half an hour into the day’s trading.
The British news was already shaking nervous investors ahead of key US inflation figures on Wednesday and Thursday, which are expected to prompt the Federal Reserve to hike interest rates further aggressively, said Michael James, managing director of equities at Wedbush Securities in Los Angeles.
“Everyone is on their toes every day at this point, much more worried that something ‘bad’ will cause further downside than worried about missing out on a ‘big upside’,” said James. “We are in a very precarious situation in the next few days.”
In particular, the BoE’s stark deadline had US investors concerned that some of the instability in UK markets could trickle down to Wall Street, said Randy Frederick, managing director of trading and derivatives at Charles Schwab in Austin, Texas.
“What caused the recent downturn was an announcement by the Bank of England that it would stop supporting the gilt market in three days. That rattled the market,” Frederick said. It’s nerves and speculation.”
The Dow Jones Industrial Average (.DJI) rose 36.31 points, or 0.12%, to 29,239.19; the S&P 500 (.SPX) lost 23.55 points, or 0.65%, to 3,588.84; and the Nasdaq Composite (.IXIC) fell 115.91 points, or 1.1%, to 10,426.19.
At its peak on Tuesday, the S&P was up a whopping 0.8%.
The pan-European STOXX 600 index (.STOXX) lost 0.56% and the MSCI indicator for global equities (.MIWD00000PUS) lost 0.97%. Earlier, the MSCI index was down as much as 1.5% to 549.19, its lowest level since October 30, 2020.
Emerging market stocks (.MSCIEF) shed 2.28% after hitting a low in April 2020 and faced a nearly 30% drop year-to-date, the biggest drop since 2008.
A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S. October 11, 2022. Portal/Brendan McDermid
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US-led NATO said member states would step up security as G7 leaders condemned Russia’s escalating attacks in Ukraine. Russian missiles have bombed Ukraine for the second straight day after dozens of airstrikes on Monday killed 19 people, injured more than 100 and cut power. Continue reading
GILT CALM
Bonds worldwide were hurt by the defeat of UK government bonds, known as gilts, which pushed US Treasury yields sharply higher.
Trading in the bond market was volatile as yields on longer-dated US Treasuries hit multi-year highs. Benchmark 10-year bonds rose 5.8 basis points to 3.943% from 3.885% late Friday.
The US Dollar Index
The euro was last up 0.05% at $0.9705.
The Japanese yen weakened 0.06% against the greenback to 145.81 per dollar, while sterling was last traded at $1.0969, down 0.78% on the day. FRX
In addition, the International Monetary Fund warned of a disorderly repricing in markets on Tuesday, saying global financial stability risks have increased. Continue reading
Concerns were compounded by news out of China that said COVID-19 infections had risen in Shanghai and other cities and some local authorities had closed schools and entertainment venues.
In commodities, oil prices extended Monday’s decline as recession fears and a flare-up of COVID-19 cases in China raised global demand concerns.
US crude was down 1.95% to $89.35 a barrel and Brent is settling at $94.29, down 1.98% on the day.
Gold trading was volatile after hitting a weekly low.
Spot gold fell 0.1% to $1,666.19 an ounce. US gold futures were up 0.11% to $1,669.10 an ounce.
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Reporting by Sinéad Carew in New York, Dhara Ranasinghe in London; Additional reporting by Bansari Mayur Kamdar in Bengaluru, Samuel Indyk in London; Edited by Jacqueline Wong, David Evans, David Gregorio and Richard Chang
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