Another wild session

More u-turns incoming?

Equity markets in Europe are marginally higher as bond market concerns ease and we await the latest inflation data from the US.

The Bank of England bond market intervention deadline is looming which in recent days has made investors very nervous about a potential sequel to the mini-budget doom loop that forced the central bank to respond initially. Those fears have eased slightly after the BoE made its biggest emergency purchase so far on Wednesday, totalling more than £4.5 billion, in a sign that pension funds are doing as instructed and reducing risk.

That comes after the first couple of weeks in which the uptake was very low, prompting some to speculate that this Friday’s deadline would trigger another frenzy. No one is calm yet and I have no doubt that the central bank will step in again if we get a repeat. The view of many though is that we shouldn’t be waiting for that cliff-edge moment, that the central bank should leave the backstop in place until the budget at the end of the month at which point a sticking plaster will hopefully no longer be necessary.

What may make things easier for the BoE is more u-turns from the government ahead of the budget and that is what is reportedly being discussed today. There have been rumours of a meeting between number 10 and the Treasury to discuss possible u-turns including on corporation tax which would be another humiliating climb down, albeit one that is boosting the pound which now trades almost 1.5% higher against the dollar today. UK yields are also in retreat on the back of those rumours.

US inflation in focus

The spotlight will shift from the UK back to the US shortly as we get the latest CPI reading from the world’s largest economy. The FOMC minutes on Wednesday had a slightly dovish tone to them, an indication that some policymakers are becoming less comfortable with the scale of tightening, the economic consequences and perhaps even the risk of overcorrecting.

That’s not entirely surprising after numerous very large rate hikes but it does represent a slight shift which will intrigue investors. Coupled with a weaker inflation number today – in particular an improvement in the core reading – investors may sense the end of the tightening cycle is nigh.

Policymakers have made clear that it will take more than just one number to sway them but investors have never been ones to wait that long. Despite repeated setbacks, they’ve continued to jump at the first opportunity and I’d be amazed if the same isn’t true today, should the data be favourable.

More intervention on the way?

Japanese Finance Minister Shunichi Suzuki once again sought to reassure the markets overnight that they remain ready to take decisive action in the FX markets, as the yen trades around 147 to the dollar. This is above where the last intervention took place and marginally below the previous high in 1998. While they continue to stress that it’s about volatility and not price levels, nothing has improved on either front since the last intervention which makes you wonder how long they’ll wait and how forceful they’ll be.

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