Stocks rally with sterling after surprise move by Bank of England

NEW YORK, United States — Global stock markets rallied on Wednesday in volatile trading after a surprise intervention by the Bank of England pressured bond yields in Britain and the United States and lifted the pound.

The Dow snapped a six-day streak of losses, piling on nearly 550 points, or 1.9 percent after the BoE action.

Following a historic slump in the pound, the BoE announced it was temporarily buying up long-dated UK government bonds "to restore orderly market conditions."

The "intervention helped calm markets and led to a reversal of a spike (in bond yields) that we had seen earlier this morning," said Angelo Kourkafas of Edward Jones.

Analysts noted that stocks were poised for an upturn after a bruising stretch since mid-August that had pushed major indices to their lowest level of 2022.

Britain's new Finance Minister Kwasi Kwarteng's tax-cutting budget sent shock waves through markets, pushing the pound to a record low and leading to dire warnings for Britain's economy -- though sterling later rallied against the dollar.

The BoE intervention followed rare criticism from the International Monetary Fund, which argued that Britain's recent budget could increase inequality and worsen inflation.

The pound, which had sunk to an all-time low against the dollar, jumped about 1.5 percent against the US currency.

"The dollar weakness was triggered by the BoE intervention today, as that gave rise to speculation that other central banks might step in to support their currencies and bonds," City Index analyst Fawad Razaqzada told AFP.

After early losses, major indices in London, Frankfurt and Paris all closed up Wednesday.

But geopolitical concerns continued to temper enthusiasm, analysts said, with heightened Ukraine tensions and looming recession fears.

Fear grips markets

Analysts warned of looming risks in the shape of soft economic data and crumbling earnings expectations.

"Fear of tightening-induced recessions has wiped out the recovery we saw in stock markets over the bulk of the summer as investors were once again burned by an over-eagerness to catch the bottom in the market, despite there being little evidence of it being justified," said OANDA's Craig Erlam.

"That fear has now gripped the markets and we may see a little more caution going forward," Erlam added.

Sentiment was also rattled by worries about developments in Ukraine, after Kremlin-installed authorities in four regions under Russian control claimed victory in annexation votes, with Moscow warning it could use nuclear weapons to defend the territories.

Ukraine and its allies have denounced the so-called referendums as a sham, saying the West would never recognize the results.

Volatile oil prices also rose Wednesday, as the European Union proposed a new round of sanctions on Moscow, including a possible oil price cap.

Leaks from two Russia-Germany undersea gas pipelines, which the EU said were caused by deliberate sabotage, also threatened to fuel further tensions in the energy conflict.