Global stocks buckle, dollar stirs as divided Fed disappoints

Global stocks buckle, dollar stirs as divided Fed disappoints
MSCI’s broadest index of Asia-Pacific shares outside Japan had lost 1% overnight after five straight days of gains while Japan’s Nikkei shed 0.6%.

Wall Street sinks as US bond market stokes recessionary fears

An investor walks ahead of personal stock trading boards at a personal stock exchange gallery in Kuala Lumpur , Malaysia, Monday, Oct. 29, 2018. (AP Photo/Yam G-Jun)
The dollar stirred and equities recoiled on Thursday after a divided US Federal Reserve System dented stimulus hopes, TikTok’s tug-of-war clobbered tech stocks and dire European car sales underscored coronavirus troubles.

Traders were also watching Bank of Japan and Bank of England meetings also as plenty more too, but the tone was set by the events overnight at the Fed and within the tech war.

The Fed extended its ‘dot plot’ forecast of unchanged US interest rates bent end-2023, but going no further than that, and upgrading growth forecasts in order that GDP is now seen reaching pre-pandemic levels next year instead of in 2022.

The downtrodden dollar rebounded across the board, given it its best daily rise in over every week against a basket of other top currencies and punting the euro back under $1.18.

Bond markets seemed less enlivened with US Treasuries and German Bunds both quiet in early European trading though choppy equities markets were making up for it.

Tech stocks shed 1.6% after US President Donald Trump’s had warned China’s ByteDance shouldn’t keep control of the US operations of social media platform TikTok, a move that had also seen Chinese heavyweight Alibaba drop quite 4% overnight.

Banks, automakers and miners were the most important sectoral fallers though, all dropping the maximum amount as 2%.

Volkswagen, Renault and PSA Group fell between 2.5% and three after industry data showed European car sales fell by 17.6% in August.

“Those who were expecting more input from Fed monetary policy after the adoption of an average-inflation target regime remained disappointed,” UniCredit analysts wrote during a note.

“While the Fed expects the Fed funds rate to stay flat through 2023, it’ll need longer to assess the status of the economy and to vary its remaining tools accordingly.”

The stronger dollar inflicted some damage in emerging markets too. Turkey’s battered lira hit its latest record low, Argentina announced new capital controls and there was a 3rd straight day of falls for eastern European currencies.

MSCI’s broadest index of Asia-Pacific shares outside Japan had lost 1% overnight after five straight days of gains while Japan’s Nikkei shed 0.6%.

“In essence, high-tech shares were overbought and we’ve seen a correction since early this month,” said Soichiro Monji, chief strategist at Nishimura Securities in Kyoto. “I think that’s still continuing, with the Fed just being a fresh trigger.”

The Fed said it might keep interest rates near zero until inflation is on target to “moderately exceed” the central bank’s 2% inflation target “for a while .”

New economic projections released with the policy statement showed most policymakers see interest rates on hold through to a minimum of 2023, with inflation not breaching 2% over that period.

“Of course, sensible people wouldn’t really hold anyone to macro forecasts that far out so we’ll cross that bridge once we get thereto ,” said Derek Holt, head of capital markets economics at Scotiabank in Toronto.

“Nevertheless, markets are priced for basically one outcome here which is small inflation and no hikes for years to return .”

BOJ, JOBS
The Australian dollar lost 0.4% to $0.7278, having erased earlier gains made after stronger-than-expected local jobs data.

The Chinese yuan also dropped about 0.35% to 6.7686 per dollar, stepping back from a 16-month high hit on Wednesday.

The yen was little moved at 104.98 to the dollar having hit a 1-1/2-month high of 104.80 per dollar overnight.

With specialise in new Prime Minister Yoshihide Suga, who is seen by some as a robust opponent of a better yen, some traders said the market could also be tempted to check his resolve on the currency.

“One interesting speculative trade the near-term are going to be to long the yen before the approaching long weekend in Japan,” said a senior trading manager at a serious Japanese bank.

The Bank of Japan maintained its policy as widely expected.

As the dollar gained, oil prices gave up a number of their big gains made on Wednesday on a drawdown in US crude and gasoline inventories, with Hurricane Sally forcing a swath folks offshore production to shut.

Brent crude dropped 1% to $41.80 per barrel while US crude fell 1.2% to $39.68 per barrel. Gold also slipped 0.8% to $1,943.8 per ounce.

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