Hallelujah! The Bank of England (BoE) jumped in the UK’s shattered sovereign market to buy long-term UK bonds yesterday, because apparently, they have been warned that collateral calls on Wednesday afternoon could force investors to further dump their UK sovereign holdings. And the UK could no longer afford another heavy selloff wave on its sovereigns. 

As a result, the BoE promised to buy as much as British sovereign papers as needed, to stabilize the UK’s sovereign debt market because Liz Truss government simply costs too much to the British economy. Britain needs a sugar daddy, and Mr. Bailey is now filling that position. 

And the funny thing is, the BoE announcement came just a day before the Bank was supposed to start selling the bonds that it had bought during the financial crisis!  

So yes, the BoE’s QT (Quantitative Tightening) was supposed to begin yesterday. But instead, the BoE made a dramatic U-turn, and started buying bonds.  

And how about the QT? There will be no QT until a further announcement.  

And given how the things look shaky in the UK, there will certainly be no QT in the close future.  

What we will probably see is the BoE buying bonds to stabilize the UK’s sovereign market, and hiking the rates to fight inflation – and the Liz Truss’ irresponsible government.  

I also believe that either Liz Truss and her Chancellor of Exchequer are on a hot seat, if they don’t take a step back from the spending package and tax cuts they announced last week. 

Happily, though, the market heard Mr. Bailey, yesterday, and the UK sovereigns rallied. At least there is some confidence in the BoE – which is reassuring.  

The British 10-year yield fell 10% yesterday, and the pound jumped past the 1.08 mark against the US dollar and consolidated below 0.90 against the euro. There is still a chance that the BoE’s bond buying is not enough, and that we see a surprise rate hike before the November 3rd meeting.  

But at this point, the BoE can no longer let the British sovereigns, and the pound sink further.  

Thanks Bailey

The surprise intervention from the BoE gave an energy boost to the markets yesterday, proving once again how the markets are addicted to the central bank money, and how they are depressed without it.  

The FTSE recovered early losses and closed the session 0.30% higher, gold recovered to $1662 an ounce, American crude rallied past the $80 per barrel, also boosted by the Hurricane Ian’s negative impact on supply. Around 11% of the Gulf of Mexico production was halted due to the storm – which will certainly have a fueling effect on food and energy prices – and inflation in the US, which should’ve normally revived the Fed hawks. But the US indices rallied anyway!  

The S&P500 gained almost 2% yesterday to above 3700 level, while Nasdaq jumped more than 2%.  

Will the enthusiasm last? Not so sure. Yesterday’s price action was a sugar rush, triggered by the BoE intervention. Enthusiasm will likely fall as the level of blood sugar falls across the financial markets. 

Vroom vroom 

Porsche will be going public in a couple minutes, in unideal market conditions, but at least a day after the BoE gave a certain relief to the market.  

The final listing price is near the top end of the range and is expected to give a value of around 75 billion euros to the company. Will the Porsche IPO be a flash in the pan, or could Porsche defy the law of gravity? We will see in a couple of minutes. 

This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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