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June 26, 2022

Global stocks tumble after Fed’s gloomy assessment

The decision disappointed world markets, which had expected the central bank to implement greater measures to kickstart the world’s largest economy.

U.S. stock futures slumped Thursday as global markets tumbled on doubts over whether the Federal Reserve’s latest move to prop up the struggling American economy will be effective, Wall Street Journal informs. Asian markets closed with sharp losses overnight. Japan’s Nikkei 225 dropped 2.1 percent to close at 8,560.26. South Korea’s Kospi slid 2.9 percent to 1,800.55. Hong Kong’s Hang Seng saw the biggest fall, diving over 900 points, or 4.9 percent, to close at 17,911.90. In mainland China, the Shanghai Composite Index closed down 2.8 percent at 2,443.06. Australia’s two main indices fell to their lowest close in more than two years at yesterday’s close. The S&P/ASX 200 closed down 106.9 points, or 2.63 per cent, to 3964.9, wiping USD 31 bln off the value of Australian stocks. The broader All Ordinaries index lost 108.9 points (2.62 per cent) at 4044.7. It was the lowest close for both indices since July 2009. European stocks sank in morning trading, with Germany’s DAX 30 index down 4 pc. Thirty-year Treasury yields fell to 2.8462 percent, with German 30-year yields also dropping to an all-time low. The French CAC 40 was also declined 5.08 percent. According to BBC, in London, miners fell after results of a survey by Markit Economics showed that China’s manufacturing sector contracted for a third month running in September, with both production and new orders declining during the month. Anglo American, Antofagasta, BHP Billiton, Kazhakhmys, Rio Tinto, Vedanta and Xstrata are falling between 6 percent and 9.3 percent. The biggest risk to the euro area is a run on southern European banks, said Kenneth Rogoff, a former chief economist at the International Monetary Fund, Handelsblatt reported. Against this backdrop, futures on the Dow Jones Industrial Average fell 176 points to 10,831 and those on the Standard & Poor’s 500 index declined 19.70 points to 1,136.10. Nasdaq 100 futures fell 37.25 to 2,208.20. The blue-chip Dow index dropped nearly 300 points, or 2.5 pc, on Wednesday after the Fed launched the so-called Operation Twist to counter what it said were “significant downside risks to the economic outlook, including strains in global financial markets.” The Fed announced a USD 400 bln program to twist the yield curve by swapping shorter-maturity government securities for longer-dated ones, a move that was widely expected by analysts. Three Fed officials dissented from the move. “It seems the market doesn’t believe Operation Twist is enough to kick start the spluttering economy … (and) a very downbeat outlook … seems to have unsettled markets even further,” said Ben Potter, market strategist at IG Markets. Concern was increased yesterday when HSBC’s China Flash PMI showed the factory sector shrank for the third consecutive month in September, pointing to a slowdown in the world’s second-largest economy. In response to the increasing economic weakness the central bank said it would extend the maturity of the bonds it holds, reinvest principal payments in securities that support the housing market and keep the interest rate banks may charge one another for overnight loans at or near zero.

Generally, world stocks as measured by MSCI were down nearly 2.5 per cent to a new year low, making for a more than 14 per cent year-to-date loss. The more volatile emerging markets stock index was down 4.7 per cent for a 22 per cent 2011 loss.

Commodity markets in negative spin also?

Gold and oil futures also dropped heavily, while the U.S. dollar rallied against rivals, as investors sought a safe haven. In the commodity markets, gold for December delivery dropped USD 40.70 to USD 1,767.40 an ounce in electronic trading on Globex. Silver in electronic trading was down USD 3 to USD 37.47, and silver for immediate delivery was off 82 cents to USD 37.27. November oil futures fell USD 3.12 to USD 82.80 a barrel. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, rose 0.8 pc to 78.300. The euro dropped 0.7 pc to USD 1.3479, a seven-month low. Indebted Greece, struggling to avoid default, made new budget-cutting pledges on Wednesday aimed at securing the next slice of bailout funding from international lenders.

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