LONDON (Reuters) – The Federal Reserve’s doubts about the US economic recovery kept markets in the red on Thursday, even though European stock indices spent the morning recovering from initial losses.
FILE PHOTO: Signage is seen outside the entrance of the London Stock Exchange in London, Britain. 23 Aug 2018. REUTERS / Peter Nicholls
Wall Street was demolished on Wednesday from its recent highs after minutes from the Fed of its July meeting spoke to investors by showing that the rapid rebound of the labor market in May and June was likely to slow.
The S&P 500 had reached an all-time high earlier in the week when prices returned to their pre-pandemic levels.
The sudden bearishness played out in Asian markets during the day and continued throughout the European session, although equities began to recover as the morning progressed.
MSCI’s broadest index of equities in Asia-Pacific outside Japan had its largest daily decline in five weeks, while the MSCI World Axis Index, which tracks equities in 49 countries, was 0.6% at 1042 GMT.
The pan-European STOXX 600 fell 0.8% and London’s FTSE 100 was down 1.14%.
Several Fed policymakers have said they may need to adopt monetary policy to help get the economy through the coronavirus pandemic.
“It’s easy to forget that we’ve just experienced one of the biggest and worst economic shocks on record,” said Kaspar Elmgreen, head of equities at Amundi.
“This story is not over yet, despite what the markets may indicate,” he said.
“We are navigating a ship here with unusually low forward visibility and a very wide range of outcomes.”
Despite the sluggish minutes, U.S. Treasury yields and the dollar have gone up with investors focusing on parts of the minutes that showed policymakers downplaying the need for yield caps and goals.
The dollar index, which measures the currency against a rate of large age peers, was choppy last night at 93,015, less than 0.1% on the day.
“The most important question for investors is whether the responses to the policy are sufficient to reduce the economic damage,” BH Global, a fund managed by Brevan Howard, said in an interim report published on Thursday.
“Many companies have solvency risks that are not addressed by lending; a debt overhang can not be cured by more loans, no matter how cheap it may be, ”the fund’s report added.
“Improved financial conditions are narrowly targeted at a handful of large companies and beneficiary stakeholders who need relatively little financial assistance. The result is that financial assets are expensive by many standard metrics.
“As long as a V-shaped recovery in risky assets fails a V-shaped recovery in economic activity, this tension is a recipe for increased volatility,” it said, adding that the U.S. presidential election in November could be a catalyst for such volatility.
Spot gold rebounded last night but fell when European markets opened.
It was 0.2% down at 1046 GMT, at $ 1,926.4615 per ounce.
Oil prices fell as large producers warned of a risk of seeking recovery.
OPEC and its allies are pushing oil countries to pump above export targets to reduce further in August to September.
Brent’s margin was up 49 cents, or 1.1%, at $ 44.88 a barrel, while U.S. oil was 48 cents, or 1.1%, at $ 42.45 a barrel.
It will take at least two years for the eurozone to fully recover from its deepest recession on record, according to a Reuters poll of economists.
Minutes from the European Central Bank’s July meeting are at 1130 GMT.
Germany’s benchmark 10-year Bund yield fell for the fifth day in a row, hitting its lowest point in more than a week at -0.499%.
Markets also remained cautious about acrimonious relations between US and China.
China’s trade ministry said the two countries had agreed to hold trade talks “in the coming days” to evaluate their Phase 1 trade, struck six months ago. [nL4N2FM1VF]
Large central banks will reduce the frequency of liquidity operations from seven days to once a week from September onwards due to low demand and reduced financial market tension, the Bank of England said. They are currently held three times a week and are often filled with no question.
Graph: Asset Performance 2020 here
Graph: World FX rates in 2020 here
Report by Elizabeth Howcroft; Edited by Alex Richardson and Steve Orlofsky
.
