Fed warning sends global stock markets scurrying

Stock markets slid around the world yesterday after the head of the US Federal Reserve warned about the “uncertain” outlook for the virus-hit US economy.
While authorities in numerous countries have been recently upgrading their economic forecasts, central banks are warning that a quick, full recovery is far from assured.
Fed chief Jerome Powell told reporters late on Wednesday that although the recovery was looking better than anticipated, “overall activity remains well below its level before the pandemic and the path ahead remains highly uncertain”, and stressed the need for more stimulus.
Meanwhile, if the Bank of England held rates steady it also yesterday gave its strongest hint yet that negative interest rates could be on the way, saying: “The outlook for the economy remains unusually uncertain.”
For its part the European Central Bank announced it was offering additional temporary relief to banks to help them cope with the impact.
On Wall Street stocks moved sharply lower at the opening bell, though the Dow had recovered most of its losses by late morning. But the S&P 500 and Nasdaq Composite were both solidly in the red.
Nine out of the 11 major S&P 500 sector indexes were lower, with technology stocks leading sectoral declines.
“A lot of this is retail investing.
Everybody’s trying to book profits, but also trying not to spook markets either,” said William Herrmann, founder and managing partner at Wilshire Phoenix in New York City.
The Nasdaq, which entered correction territory earlier this month, slipped another 1% with Facebook Inc, Apple, Amazon.com, Tesla Inc, Microsoft Corp, Alphabet Inc and Netflix Inc together losing $150bn in market capitalisation in the first half hour of trading.
Bank stocks slipped 1.1%, while the broader financials subindex fell 0.8%, a day after the Federal Reserve pledged to keep interest rates low for a prolonged period to lift the world’s biggest economy out of a pandemic-induced recession.
London finished the day off by 0.5% at 6,049.92 points, while Frankfurt shed 0.4% at 13,208.12 points and Paris fell 0.7% at 5,039.50 points. The EURO STOXX 50 closed 0.5% down at 3,320.83 points.
Asian equities had mostly dropped following a broadly negative lead from Wall Street on Wednesday.
“A lingering sense of disappointment hangs over global markets in the wake of the Fed meeting,” said IG analyst Chris Beauchamp.
“Investors had evidently hoped for something much more concrete than the relatively vague policy outlook provided by Powell and Co, with equities struggling... and the dollar finding some support.”
While the central bank indicated interest rates were unlikely to begin rising for another three years, allowing businesses to borrow at ultra-low levels, Powell’s call for more fiscal help came as US lawmakers seem unable to find common ground on a new support package.
“It will take a while to get back to the levels of economic activity and employment that prevailed at the beginning of this year,” Powell said. “My sense is that more fiscal support is likely to be needed.”
As if confirmation of that, the latest data on new US jobless claims showed only a slight dip from the previous week, to 860,000 first-time requests for unemployment benefits.
“Economic momentum continues to fade as many Americans continue to file new claims for... benefits offered to independent contractors and freelancers who do not qualified for regular unemployment benefits,” said Edward Moya, senior market analyst at online currency trading firm Oanda.
Talks on a new rescue bill have been stalled for weeks, with both sides digging in their heels and blaming each other, though Democratic House Speaker Nancy Pelosi and White House chief of staff Mark Meadows each made encouraging statements about the potential to break the impasse.
President Donald Trump on Wednesday tweeted that Republicans — who last week put forward a $500bn proposal — should “go for the much higher numbers”, suggesting he is keen to reach an agreement with Democrats, who are aiming for $2tn.
“The Fed is out of tools and stock investors are finally realising this,” said Greg Swenson, founding partner of Brigg Macadam.
“With rates this low and quantitative easing ramped up, there is little the Fed can do to help the economy rebound or limit the fallout from any unexpected economic weakness in the near-term.”
Adding to concerns around a stalling recovery, the Labour Department’s report showed the number of Americans filing new claims for unemployment benefits fell last week, but remained perched at extremely high levels.
General Electric Co rose 5.5% after chief executive officer Larry Culp said on Wednesday the company’s free cash flow would turn positive in the second half of this year.
Ford Motor Co added 3.8% as it said it had begun production of the new generation F-150 pickup truck at its Michigan facility.
German biotech firm BioNTech SE rose 2.2% as it said it was buying a production site from Swiss drugs giant Novartis to boost output of its potential coronavirus vaccine by several million doses.
Oil prices jumped as a meeting of the Opec+ group of crude producing nations got under way.