Europe close: Stocks rise after BoE intervenes in bond markets
European stocks reversed earlier losses to end higher on Wednesday, after the Bank of England stepped in to stabilise gilt markets.
The benchmark Stoxx 600 index closed up 0.3% at 389.41, Germany’s DAX ended 0.4% higher at 12,183.28 and France’s CAC 40 closed 0.2% firmer at 5,765.01.
Market participants turned their attention to the UK, where the BoE was forced to intervene in bond markets following the recent selloff. The BOE said it would halt the start of its gilt selling next week and would carry out temporary purchases of long-dated governments bonds from Wednesday in order to restore orderly market conditions.
"The purchases will be carried out on whatever scale is necessary to effect this outcome," it said in a statement.
"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."
The Bank added that it "stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses".
IG market analyst Chris Beauchamp said: "The Bank of England’s U-turn (at least for now) on QE has given embattled buyers a reason to step back into the market. While it might not be the big QE programmes of old, it seems the bank’s willingness to intervene is being taken as a good sign, especially compared to its inaction earlier in the week."
On the macro front, the latest survey from GfK showed that German consumer sentiment was set to slide further in October amid a drop in purchasing power.
GfK’s forward-looking consumer sentiment index for October is forecast to come in at -42.5, down from 5.7 points from September.
GfK said the main reason for the sharp decline is that the index for income expectations has fallen 22.4 points to -67.7 - a record low. Meanwhile, the propensity to buy index fell 3.8 points to 19.5 in October, marking the worst reading since the global financial crisis in October 2008.
"The current very high inflation rates of almost eight% are leading to large real income losses among consumers and thus to significantly reduced purchasing power," said Rolf Bürkl, GfK consumer expert.
"Many households are currently forced to spend significantly more money on energy or to set money aside for significantly higher heating bills. Accordingly, they need to cut back on other expenses, such as new purchases. This is sending consumer sentiment plummeting to a new record low."
In corporate news, luxury fashion brand Burberry gained even as it said that chief creative officer Riccardo Tisci will be stepping down at the end of the month. Tisci has decided to leave after almost five years, during which he spearheaded Burberry's creative transformation. Tisci will be succeeded by Daniel Lee, who will join the group on 3 October.
Elsewhere, Germany’s Thyssenkrupp tumbled 11% after JPMorgan reinstated coverage of the stock at ‘underweight’.