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Today in the Market (9/28/2022)

Good Evening. Wednesday afternoon, U.S. stocks surged as Treasury yields reversed a sharp rise and investors cheered the Bank of England’s unexpected policy shift.

After hitting fresh 2022 lows this week, both the S&P 500 and the Dow Jones rebounded 1.97% and 1.88%, respectively. The Nasdaq Composite pulled ahead by 2.05%.

CLINICAL TRIAL BREAKTHROUGH!

Biogen Inc.’s (BIIB) stock price increased to the highest since November 2020 after a significant clinical trial with its partner Eisai Co. demonstrated that the treatment lecanemab slowed the course of Alzheimer’s disease. Biogen and Eisai reported that their medicine delayed the progression of Alzheimer’s by 27% compared to a placebo in a large clinical trial including patients in the early stages of the illness.

How does it work? The medicine targets a deadly protein plaque known as amyloid beta, which has long been seen as essential to halting the spread of the fatal brain illness, despite repeated failures in prior attempts.

And with this victory, the stock rose 40%, reversing this year’s drop and adding more than $11 billion to its market value. On top of that, other firms exploring neurodegenerative illness medicines have also gained. Eli Lilly and Co., which is researching donanemab for early-stage Alzheimer’s, rose 7.5%. Prothena Corp. increased by 88%, while Acumen Pharmaceuticals Inc. increased by 104%.

UNEXPECTED POLICY SHIFT

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The Bank of England intervened in the British bond market to prevent a market collapse, agreeing to purchase approximately £65 billion ($69 billion) of long-term gilts after the new government’s tax cut plans sparked the largest sell-off in decades.

Due to potential threats to the stability of the financial system, the Bank of England postponed on Wednesday the start of a programme to sell down its $889 billion worth of government bond holdings, which had been scheduled to begin the next week. However, The central bank reaffirmed its commitment to reduce its holdings of bonds purchased following the global financial crisis of 2007-2008 and during the COVID-19 pandemic by £80 billion ($87 Billion) over the next 12 months.

Why is this happening? Yields on British 30-year bonds reached their highest level since 2002 on Wednesday morning, and traders claimed it was getting increasingly difficult to buy and sell bonds since no one wanted to retain such a volatile asset.

Going Forward… The central bank has not set a limit on the extent of its intervention but said it originally planned to undertake daily auctions between Wednesday and October 14 to purchase up to 5 billion pounds of gilts with a maturity of at least 20 years.

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