US stocks are rallying after the BOE’s intervention tentatively halted the bond market selloff. The theme on Wall Street is rising risks for a hard landing next year, while we are hearing a steady chorus of Fed speak that mostly confirmed the market’s expectation that rates will rise to 4.25%-4.50% by the end of the year. Some traders are growing confident that we are close to seeing the end of the Fed’s tightening cycle, but that is still too early to say.
The UK economy was hit with Brexit, COVID, and now an energy crisis that will last for many years. With a looming crash in the gilts market, the BOE’s hand was forced and they clearly had limited options to act.
The BOE announced they will carry out temporary purchases of long-dated UK bonds and postpone the start of Quantitative Tightening Gilt sales until the end of October. The British pound went on a little roller coaster ride following the BOE action to buy unlimited long-dated gilts, but will still probably remain heavy over the country’s fiscal situation, current account deficit, financial stability risks, and energy poverty likelihood for parts of the population.
Biogen’s Alzheimer’s large study showed its experimental treatment dramatically slowed the progression of the disease. This treatment targets amyloid plaques and could be a game-changer in how scientists move forward in finding treatments for Alzheimer’s. The improvement was quick and started as early as six months. It is still too early to say if this treatment will remove the plaque or slow the progression, but this study of a diverse group of 1,795 people shows it provided a benefit. The full results will be published at a later date.
Roche and Eli Lilly use a similar approach and their share prices are also rallying.
Cryptos are benefitting from the BOE’s action that sent global bond yields in retreat. Bitcoin is higher but still below the $20,000 level as investors quickly pile back into risky assets. If the stock market rally is able to overcome hard landing fears, that should provide a nice backdrop for cryptos. This broad risk-on rally doesn’t seem like it has legs to stand on, but this bounce could last a little longer.
At Delivering Alpha, CFTC Chairman Behnam reminded us that we are still a long way from having a clear regulatory path for crypto. Figuring out which cryptos are a commodity and which ones are a security will take a long time in the courts for this to be figured out. It doesn’t look like the SEC and CFTC have an initial understanding or agreement on how this relatively new asset class should be classified. Crypto regulation will take a while and until a framework is mostly in place bitcoin will likely remain rangebound.