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Asia stocks bounce, pound still slippery

Asian stock markets traded higher after after Britain’s central bank launched an emergency bond buying programme, but the pound lost momentum in Asia trade.

September 29, 2022
By Tom Westbrook
29 September 2022

Asian share markets rose after Britain’s central bank launched an emergency bond-buying programme to stabilise a furious sell-off in gilts, though trade was skittish and sterling remained under pressure.

The Bank of England said it will buy as much as 5 billion pounds ($A8.3 billion) a day of long-dated government bonds, also known as gilts, until October 14. 

It spent about a billion pounds on Wednesday and 30-year gilt yields fell 105 basis points, the biggest drop ever according to Refinitiv records stretching back to 1992.

The move buoyed sterling [pounds] and offered some relief to a fractious mood in markets, but by mid-morning in Tokyo the pound was already struggling for support and down 0.6 per cent to $1.0818.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 1.5 per cent and eyeing its best session in a month. Japan’s Nikkei rose 0.9 per cent.

“It’s all a bit of a mess,” said ANZ economist Finn Robinson. “How long the calm and fresh optimism lasts remains to be seen. For one, this re-stimulation will lift, not quell UK inflation, and that’s bad for bonds and sterling.”

The fallout from unfunded tax cuts announced in Britain last week has reverberated across financial markets after setting off a collapse in British asset prices. 

The BoE’s intervention followed steps in Korea, India and Indonesia to stabilise their financial markets this week as the US dollar rallied broadly.

US Treasuries’ 10-year yields, which had pipped 4 per cent a day ago, were down more than 20 basis points to sit at 3.7472 per cent.

Wall Street rallied, too, with the S&P 500 breaking a six-day losing streak to surge nearly 2 per cent.

The mood gave pause to the US dollar’s march higher and the dollar index had its worst session in 2-1/2 years as the currency drew back from lofty heights. It was soon trading firmly again, however, in Asia on Thursday.

The US dollar index was up 0.1 per cent to 113.12, within striking distance of Wednesday’s 20-year high of 114.78. The euro fell about 0.5 per cent to $US0.9695.

The Australian dollar, meanwhile, got a brief lift and traded just above $US0.65 after new data from the statistics bureau showed some high inflation readings for July and August.

The US dollar’s pullback helped oil and gold make gains, which were held into the Asian day. Brent crude futures rose 0.2 per cent to $US89.50 a barrel. Spot gold was steady at $US1,656 an ounce. 

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