London midday: FTSE pares losses, gilt yields fall as BoE intervenes in bond markets
London stocks had pared losses and bonds were rallying by midday on Wednesday after the Bank of England stepped in to stabilise the gilt market.
The FTSE 100 was 0.3% weaker at 6,961.66 - well off earlier lows - while the pound was down 0.6% against the dollar at 1.0673.
The BOE said it will halt the start of its gilt selling next week and 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". It also said that the Monetary Policy Committee will not hesitate to change interest rates by as much as needed to return inflation to its 2% target.
The announcement from the BoE caused an immediate drop in long-dated UK gilt yields, with the 10- and 30-year bond yields falling by around 0.4%.
The selloff in UK government bonds began last week after chancellor Kwasi Kwarteng announced a swathe of tax cuts in his so-called mini-budget. The fiscal package announced includes around £45bn in tax cuts and £60bn in energy support to households and businesses and will be funded through borrowing.
The International Monetary Fund has urged the UK to reverse the tax cuts announced, warning that the measures will add to inflation and increase inequality. Meanwhile, Moody's has cautioned that the mini-budget risks "permanently weakening the UK's debt affordability", suggesting that a credit rating downgrade could be on the cards.
Walid Koudmani, chief market analyst at XTB, said: "This is a significant step by the Bank of England. The UK central bank first tried words, which failed. Now it tries to intervene in bond markets to bring yields back under control. On the one hand, this might bring some reassurance to the market that the BoE is ready to act outside of its scheduled meetings. This means it's now much more likely we will see major interest rate hikes before the next MPC meeting in November.
"Yet on the other hand, the Bank of England is applying plasters on the financial wounds created by the Truss government who have shown no hint at reversing policy. So until that happens, the question remains how much further will the BoE be forced to intervene and over what time period? Time will tell."
In equity markets, luxury fashion brand Burberry was sitting pretty at the top of the FTSE 100 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.
Russ Mould, investment director at AJ Bell, said: "The rise in Burberry’s share price is perplexing given the news that chief creative officer Riccardo Tisci is leaving, as he was well respected. Yet in the fickle world of fashion, trends come and go, and so the arrival of someone new may just have excited investors."
He pointed out that Tisci’s replacement Lee is "credited for helping to breathe some new life into Italian luxury brand Bottega Veneta".
Outside the FTSE 350, fast-fashion retailer Boohoo slumped as it cut its outlook for the full year and reported a slide in interim profit, pointing to a challenging consumer backdrop.
The company said it now expects lower sales than previously anticipated, which in turns means that adjusted EBITDA margins are likely to be between 3% and 5%, down from previous guidance of 4% to 7%. Boohoo, which had previously guided to "low single digits" growth in revenue, highlighted an increase in inflation-driven costs.
FTSE 100 - Risers
Burberry Group (BRBY) 1,755.50p 4.21%
British Land Company (BLND) 344.60p 3.05%
Severn Trent (SVT) 2,391.00p 2.88%
Land Securities Group (LAND) 499.10p 2.84%
National Grid (NG.) 972.60p 2.57%
Kingfisher (KGF) 224.00p 2.47%
SEGRO (SGRO) 709.80p 2.28%
Berkeley Group Holdings (The) (BKG) 3,314.00p 2.19%
SSE (SSE) 1,582.50p 2.16%
Centrica (CNA) 75.24p 1.84%
FTSE 100 - Fallers
Airtel Africa (AAF) 131.90p -6.52%
Legal & General Group (LGEN) 221.00p -5.31%
Aviva (AV.) 390.10p -4.60%
Barclays (BARC) 149.52p -4.06%
M&G (MNG) 172.10p -3.91%
Standard Chartered (STAN) 564.60p -3.82%
Harbour Energy (HBR) 437.00p -3.81%
Rolls-Royce Holdings (RR.) 66.80p -3.51%
Auto Trader Group (AUTO) 532.20p -3.20%
Phoenix Group Holdings (PHNX) 541.40p -3.11%
FTSE 250 - Risers
PureTech Health (PRTC) 225.50p 5.87%
Hikma Pharmaceuticals (HIK) 1,310.00p 5.56%
Close Brothers Group (CBG) 944.50p 3.45%
Johnson Matthey (JMAT) 1,881.00p 3.10%
Redrow (RDW) 420.00p 3.09%
Drax Group (DRX) 642.50p 3.05%
Trainline (TRN) 310.90p 2.95%
Pennon Group (PNN) 810.00p 2.79%
Playtech (PTEC) 433.60p 2.65%
Abrdn (ABDN) 138.70p 2.63%
FTSE 250 - Fallers
Aston Martin Lagonda Global Holdings (AML) 131.75p -12.05%
Molten Ventures (GROW) 296.20p -6.03%
ASOS (ASC) 593.50p -4.96%
Jlen Environmental Assets Group Limited NPV (JLEN) 107.80p -4.94%
Foresight Solar Fund Limited (FSFL) 104.60p -4.56%
Coats Group (COA) 53.60p -4.29%
888 Holdings (DI) (888) 103.60p -4.07%
The Global Smaller Companies Trust (GSCT) 126.00p -3.96%
OSB Group (OSB) 446.20p -3.88%
Just Group (JUST) 62.10p -3.72%