Australian and US markets have rebounded after the Bank of England said it would buy longer-term UK government bonds to stabilise financial markets after the pound plunged to record lows against the greenback earlier this week.
The UK central bank pledged to buy 65 billion pounds ($108 billion) of government bonds to stem the global market turmoil, which was sparked by the new UK government's plans to cut taxes.
That move saw the Australian market jump nearly 2 per cent at its peak, and the Australian dollar rose more than 1 per cent overnight to above 65 US cents, after dropping below 64 US cents yesterday.
At 4:30pm AEST, the local currency had lost much of those gains and was buying around 64.58 US cents.
By the close, the All Ordinaries index came off its highs but ended up 1.5 per cent to 6,761, and the ASX 200 rose 1.4 per cent to 6,555.
ASX movers
All sectors increased on the ASX 200, with energy stocks leading the gains after a rise in oil prices overnight.
Industrial firms, miners, and consumer stocks were among the top performers, and all the big banks gained ground.
The best performers on the ASX 200 were retail chain owner Premier Investments (+14.6 per cent), coal miner Coronado Global Resources (+8.1 per cent) and gold explorer De Grey Mining (+7.2 per cent).
Premier Investments soared after it said record sales boosted its annual net profit by nearly 5 per cent to $285 million for the 2022 financial year.
Investors will get a special dividend of 25 cents a share, taking total fully franked dividends for the year to $1.25 per share, and it announced a up to $50 million share buyback.
Going down were financial software firm Iress (-17.3 per cent) after it cut its profit forecasts because of challenging economic conditions, Cromwell Property Group (-1.5 per cent) and Bega Cheese (-1.4 per cent).
AGL to exit coal sooner
Power firm AGL Energy bowed to investor pressure and said it would close down its Loy Yang A power station by 2035, a decade earlier than previously announced, and invest up to $20 billion in renewable energy.
The U-turn followed pressure from the biggest investor and climate activist Mike Cannon-Brookes that forced AGL to abandon plans to split the firm into a retail and power generation arm.
AGL ended steady at $6.60.
The federal government struck a deal with major gas exporters on the east coast to ensure sufficient supplies are available to avoid a forecast shortfall next year.
The agreement will see more gas supplied to the domestic market, and means Australia will not limit gas exports.
Oil and gas producer Santos (+2.3 per cent) said it was a good outcome for the company, which removed sovereign risk and ensured long term supply contracts were honoured.
Nuix sued
Software firm Nuix lost 4.2 per cent after the corporate regulator, the Australian Securities and Investments Commission, said it would sue the firm for allegedly making misleading statements about its financial position in its prospectus and breaching continuous disclosure laws.
ASIC also launched legal action against some directors for alleged breaches of directors' duties.
Nuix said it denied the allegations against and it and its directors and said it would defend the proceedings.
Inflation eases
New preliminary data from the Bureau of Statistics showed monthly inflation eased back from July to August because of a steep fall in petrol prices.
Consumer prices rose 7 per cent over the year to July, and by 6.8 per cent over the year to August.
Other ABS numbers showed that household wealth fell by $484 billion over the June quarter to $14.4 trillion and wealth per capita fell to $553,954, amid large falls on global share markets and lower home prices.
The ABS also said that job vacancies fell 2.1 per cent in the three months to August with construction and education jobs decreasing, while there were more jobs in transport, postal, warehousing, and retail.
Despite that, the number of job vacancies remains very high, with one employed person per job vacancy, a record low.
There were 471,000 vacancies in August compared to 227,000 in February 2020.
Bank of England buys gilts
Aside from launching the emergency program to stem the sell-off of government bonds, also known as gilts, the Bank of England (BoE) also delayed its plan to start selling its holdings of government bonds, which had been due to start next week.
It said the bond purchase program was needed to avert a financial crisis.
"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the BoE said.
"This could lead to an unwarranted tightening of financial conditions and a reduction in the flow of credit to the real economy."
The BoE said it would start buying bonds from now until October 14.
It said the purpose of the bond-buying was to restore orderly market conditions.
"The purchases will be carried out on whatever scale is necessary to effect this outcome," it said.
A spokesperson for the UK Treasury said UK Chancellor Kwasi Kwarteng supported the plan.
"The government will continue to work closely with the bank in support of its financial stability and inflation objectives," the spokesperson said.
Mr Kwarteng delivered a mini budget on Friday, announcing tax cuts funded by huge increases in government borrowing.
That sparked fears of even higher inflation in the UK at the same time as the central bank is trying to reduce rising inflation by lifting interest rates.
The country's current economic conditions have seen banks withdraw some mortgage products and raise home loan interest rates, and some UK pension funds have been hit with margin calls as investors tried to withdraw funds.
Meanwhile, the chancellor's plan undermined investor confidence in the UK government's policies and was criticised by the International Monetary Fund.
Central bank 'band aid'
Prominent investor and investment adviser Mohamed El-Erian said there would be long-term damage caused by the bond-buying plan and the UK's policy approach was becoming "less and less coherent".
He said the BoE should raise interest rates before its November meeting, and the UK government should delay the tax cuts.
Mr El-Erian said he wanted to see an emergency rate hike by the UK central bank of 1 percentage point or more.
"There's an inherent contradiction in what they're trying to do," he told CNN.
"That's why this is nothing more than a band-aid."
Yields or returns on 30-year UK bonds reached their highest since 2002 before the announcement and traders said it was becoming hard to buy and sell bonds because of the risk of holding such a volatile asset.
Yields on UK government bonds dropped after the announcement and the pound stabilised.
It was a volatile night for the pound, which fell as low as $US1.0539 before jumping as high as $US1.0916.
Meanwhile, the safe-haven US dollar pulled back from its 20-year high.
The UK's main share market index, the FTSE 100, rose 0.3 per cent, to 7,005.
Wall Street surge
US stocks jumped after the announcement by the BoE, as shares rebounded from their 2022 lows and yields on US government bonds fell.
The S&P 500 index made its first gain in seven trading sessions, a day after marking a new bear market low.
Apple fell after Bloomberg reported the company was dropping plans to increase production of new iPhones, this after after an expected rise in demand failed to materialise.
The Dow Jones Industrial Average rose 1.9 per cent, to 29,684, the S&P 500 rose 2 per cent, to 3,719, and the Nasdaq Composite rose 2.1 per cent, to 11,052.
And the Australian share market is set to surge today, with the ASX SPI 200 index up 1.5 per cent, to 6,558, by 7:20am AEST.
Oil prices jumped for a second day, rebounding from their recent falls as the US dollar eased and US inventory figures showed larger-than-expected drawdowns.
Brent crude rose 3.2 per cent, to $US89.03 a barrel.
Spot gold jumped nearly 2 per cent, to $US1,659 an ounce.
ABC/Reuters
