Trump has frequently criticised the US central bank for gradually raising interest rates (JEFF SWENSEN)
London (AFP) – A global stock market downturn worsened Thursday as investors, spooked by a plethora of economic woes, dumped shares that suddenly looked dangerously overvalued.
The extent of European equity falls almost matched the previous day’s tumble at the close, while Wall Street was also in the red again, having earlier tried, and failed, to recapture positive territory.
“Global sentiment remains skittish amid the recent rise in global bond yields, led by Treasuries, as well as concerns about the Fed tightening policy too much despite rising risks,” said Charles Schwab analysts.
Mounting worries over high interest rates and trade battles, although hardly new, have reached boiling point, said analysts, who were wary of predicting the markets’ next moves.
“It looks like we could be in for another difficult day on Wall Street, but the acid test will be if the benchmarks close below yesterday’s levels,” said David Madden at CMC Markets.
– Just the beginning? –
Crucially, investors seemed to be finally grasping that the American economy is facing a slowdown, sparking fears that the current market downturn may just be the beginning, said Oliver Jones at Capital Economics.
“Investors are starting to factor in the prospect of the US economy slowing in response to tighter monetary policy,” he said. “We think that this will start to happen in 2019, causing equities in the US and elsewhere to fall much further.”
US President Donald Trump earlier blamed “crazy” policies of the Federal Reserve for contributing to financial market turmoil, although the White House later said he was not trying to dictate Fed policy.
“In the absence of a specific trigger, investors are currently voting with their feet,” said Richard Hunter, head of markets at Interactive Investor.
US Treasury Secretary Steven Mnuchin, meanwhile, said that Wall Street’s rout was “somewhat of a correction”.
International Monetary Fund chief Christine Lagarde defended central bank rate hikes in a veiled rebuke to Trump.
“It is clearly a necessary development for those economies that are showing much improved growth, inflation that is picking up… unemployment that is extremely low,” she told a press briefing in Bali, host to annual meetings of the IMF and World Bank this week.
– All bets off –
The IMF on Tuesday cut its global GDP growth forecast by 0.2 percentage points to 3.7 percent for both 2018 and 2019, citing economic uncertainties.
“All bets are off,” warned Stephen Innes, head of Asia-Pacific trading at OANDA, adding that markets were “fraught with peril”.
Among Asia’s biggest stock market losers Thursday were Shanghai and Taipei, closing down 5.2 and 6.3 percent respectively. Chinese stock markets plunged to their lowest levels in four years.
“Interest rate put aside, the Sino-US trade spat is to blame for the October market rout because people are worried the friction would evolve into a political confrontation,” Guangzhou Wanlong Securities said in a research note.
Trump’s latest criticism of the Federal Reserve gave investors another headache.
“I think the Fed is making a mistake,” Trump told reporters as he arrived for a campaign rally ahead of the US mid-term elections.
Trump has repeatedly touted Wall Street records as proof of the success of his economic programme.
Oil fell after OPEC Thursday cut its forecast for world demand for this year and next.
– Key figures around 1545 GMT –
New York – Dow Jones: DOWN 0.4 percent at 25,498.85
London – FTSE 100: DOWN 1.9 percent at 7,006.93 (close)
Paris – CAC 40: DOWN 1.9 percent at 5,106.37 (close)
Frankfurt – DAX 30: DOWN 1.5 percent at 11,539.35 (close)
EURO STOXX 50: DOWN 1.8 percent at 3,209.18
Hong Kong – Hang Seng: DOWN 3.5 percent at 25,266.37 (close)
Shanghai – Composite: DOWN 5.2 percent at 2,583.46 (close)
Tokyo – Nikkei 225: DOWN 3.9 percent at 22,590.86 (close)
Euro/dollar: UP at $1.1562 from $1.1523 at 2100 GMT on Wednesday
Pound/dollar: DOWN at $1.3192 from $1.3222
Dollar/yen: DOWN at 112.28 from 112.35 yen
Oil – Brent Crude: DOWN $2.10 at $80.99 per barrel
Oil – West Texas Intermediate: DOWN $1.85 at $71.32 per barrel
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