Global stocks retreat on lack of new Fed action

BEIJING (AP) — Global stocks and United States (US) futures sank yesterday after the Federal Reserve indicated its benchmark interest rate will stay close to zero at least through 2023 but announced no additional stimulus plans.

London and Frankfurt opened lower. Shanghai, Tokyo, Seoul and Hong Kong all retreated.

The Fed said on Wednesday it will not raise interest rates until inflation reaches two per cent, which the US central bank’s own projections said will not happen until late 2023. Chairman Jerome Powell promised the Fed “we will not lose sight” of unemployed Americans but gave no indication of new stimulus.

Markets “hoped for the Fed to put policy money where the mouth is” but “ended up a tad disappointed,” Mizuho Bank said in a report. The Fed was “long on talk and short on action”.

Also yesterday, the Japanese central bank left its interest rates unchanged and gave no sign of possible stimulus plans.

In early trading, the FTSE 100 in London lost 0.7 per cent to 6,038.88 and the DAX in Frankfurt shed 0.7 per cent to 13,159.84.

The CAC 40 in Paris lost 0.8 per cent to 5,035.80.

A currency trader at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea. PHOTO: AP

On Wall Street, the future for the benchmark S&P 500 index fell 1.2 per cent and that for the Dow Jones Industrial Average lost one per cent.

On Wednesday, the S&P 500 lost 0.5 per cent while the Dow gained 0.1 per cent. The Nasdaq composite fell 1.3 per cent.

In Asia, the Shanghai Composite Index lost 0.4 per cent to 3,270.44 and the Nikkei 225 in Tokyo sank 0.7 per cent to 23,319.37.

The Hang Seng in Hong Kong retreated 1.6 per cent to 24,340.85.

The Kospi in Seoul shed 1.2 per cent to 2,406.17 while Sydney’s S&P-ASX 200 declined 1.2 per cent to 5,883.20.

India’s Sensex retreated 0.5 per cent to 39,088.73.

New Zealand and Southeast Asia markets all retreated.

Global markets have recovered most of this year’s losses, boosted by central bank infusions of credit into struggling economies and hopes for a coronavirus vaccine.

Forecasters warn, however, that the recovery might be too big and fast to be supported by uncertain economic activity.

US investors are counting on Congress for a new support package after additional unemployment benefits that help to support consumer spending expired, but legislators are deadlocked on its possible size.

Powell said the US economy has recovered quicker than expected.

The Fed forecast the economy will shrink 3.7 per cent this year, an improvement over its June outlook of a 6.5 per cent drop. The Fed projected an unemployment rate at the end of the year of 7.6 per cent instead of the 9.3 per cent projected in June.

“A full economic recovery is unlikely until people are confident that it is safe to re-engage in a wide variety of activities,” Powell said.

In energy markets, benchmark US crude oil for October delivery lost USD0.24 to USD39.92 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose USD1.88 on Wednesday to USD40.16. Brent crude oil for November delivery shed USD0.21 to USD41.01 per barrel in London. It gained USD1.69 the previous session to USD42.22.

The dollar declined to JPY104.73 from Wednesday’s JPY105.01.

The euro edged up to USD1.1803 from USD1.1801.