Stock rally peters out as markets question US rate cut impact
Investors are hoping the Federal Reserve slashes interest rates by 50 basis points at its next policy meeting at the end of the month (KAREN BLEIER)
London (AFP) – European stock markets slipped back Friday after an initial rally, as investors cooled on comments by a top Federal Reserve official that hinted at the US central bank unveiling a deep interest rate cut at the end of the month.
The dollar was higher, while oil prices jumped on escalating tensions between the United States and Iran.
John Williams, the influential vice chairman of the Fed’s policy-setting board, said central banks should move quickly to support the economy even when borrowing costs were already low.
He pointed to studies suggesting that when there are few stimulus options available, officials should “move more quickly than you otherwise might,” rather than waiting “for disaster to unfold”.
While a spokesman later clarified that Williams was not outlining Fed policy and was not flagging a half-point cut, analysts said the remarks provided an insight into how officials were thinking.
Markets have been wavering this week over how big the Fed’s expected reduction would be, with 25 basis points priced in but some traders hoping for 50.
Wall Street ended in positive territory Thursday following Williams’ comments, with Asia and Europe picking up the baton with solid gains Friday before profit-taking set in amid lingering concerns about the global growth outlook and a lack of progress in China-US trade talks.
Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co, cautioned about becoming too excited by the prospect of a sharp US rate cut doing much to support the economy.
“I don’t think a few rates cuts are going to make the difference, whether it’s 25 or 50 basis points at the end of this month,” he told Bloomberg TV.
– Oil rallies –
Elsewhere Friday, oil jumped more than 1.5 percent after US President Donald Trump said an American navy vessel downed an Iranian drone in the strategic Strait of Hormuz, a claimed strongly denied by Tehran.
The alleged incident Thursday comes amid soaring tensions between the two foes after Iran shot down a US drone last month.
Markets are concerned about escalating tensions in the Gulf through which nearly a third of the world’s oil is transported.
“With the situation… turning into a powder keg again, Brent crude prices will remain propped up,” noted Fiona Cincotta, an analyst at City Index trading group.
On the corporate front, the world’s leading brewer AB InBev said it plans to sell Australian unit Carlton & United Breweries for 16 billion Australian dollars (US$11.3 billion).
AB InBev, a Belgian-Brazilian behemoth that owns brands such as Stella Artois and Budweiser, is saddled with more than $100 billion in debt.
– Key figures around 1015 GMT –
London – FTSE 100: FLAT at 7,493.96 points
Frankfurt – DAX 30: UP 0.1 percent at 12,235.82
Paris – CAC 40: DOWN 0.1 percent at 5,546.42
EURO STOXX 50: DOWN 0.1 percent at 3,479.10
Tokyo – Nikkei 225: UP 2.0 percent at 21,466.99 (close)
Hong Kong – Hang Seng: UP 1.1 percent at 28,765.40 (close)
Shanghai – Composite: UP 0.8 percent at 2,924.20 (close)
New York – Dow: FLAT at 27,222.97 (close)
Euro/dollar: DOWN at $1.1240 from $1.1277 at 2050 GMT
Pound/dollar: DOWN at $1.2533 from $1.2548
Dollar/yen: UP at 107.63 yen from 107.30 yen
Brent North Sea crude: UP 1.8 percent at $63.06 per barrel
West Texas Intermediate: UP 1.6 percent at $56.16 per barrel
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Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.