Wall St roars back from six-day slide, bonds surge

The Australian sharemarket is set for a lift this morning after US stocks and Treasuries rallied on Wednesday on the back of the Bank of England’s decision to stage a market intervention boosted UK bonds and tentatively calmed markets. ASX futures are up 98 points, or 1.5 per cent, to 6558 around 7am.

The S&P 500 snapped a six-day rout. It rose the most since early last month, and for the first time since the US Federal Reserve boosted rates and dialled up its hawkishness a week ago. The index jumped more than 2 per cent later in the session, bolstered by gains in Amazon.com shares after the company’s annual device event on Wednesday showed it pushing further into wellness, security and the auto industry.

The 10-year US Treasury yield dropped towards 3.72 per cent after topping 4 per cent earlier. The yield on 30-year UK gilts plunged more than one percentage point. Oil advanced with metals. Orange juice futures spiked as Hurricane Ian barrelled ashore in Southwest Florida.

Global markets enjoyed a break from the brutal selling that has gripped them since the Fed embarked on the most aggressive path of interest-rate rises by since the 1980s. The Bank of England soothed nerves after it said it would buy long-dated government bonds in whatever quantities were needed to end the chaos caused by the government’s plans to slash taxes.

Fed officials remained diligent in warning that more rate-rise pain is yet to come, with Atlanta Fed president Raphael Bostic and Chicago Fed president Charles Evans reinforcing the hawkish stance their colleagues have been hammering home all week.

“All eyes are on inflation and interest rates, and this renewed hawkishness or more aggressive hawkishness from the Fed has certainly sent equity markets into a period of concern here,” said Josh Emanuel, chief investment officer of investment management at Wilshire. “From this point forward, equities are really going to take their cues from bond market. So if you see bond yields move lower, that is a good sign for equities.”

Stocks may also be rising because the markets have priced in the Fed’s hawkishness, according to Adrian Helfert, chief investment officer of multi-asset strategies at Westwood Holdings Group.

“It’s harder for the central bank and the speakers to say much more – short of saying that they’re going to start hiking by 100 basis points for the next several meetings,” he said. “Maybe the market is at least now believing what the Fed is saying.”

But economists are still worried that the central bank is committing another error after being too slow to respond to inflation, since a series of jumbo rises mean officials are not weighing the impact their actions are having on the economy.