Wall Street follows European markets lower, after Chinese slowdown stops US central bank from raising interest rates * Latest: Wall Street joins the rout * Haldane: UK interest rates could fall * European markets hit by strong euro and Fed fears * Fed may not hike until 2016 * Analysts predict more volatility * Fed has ‘sown confusion’ * Fed keeps rates on hold again – as it happened 9.14pm BST US stock markets closed down almost 2% on Friday following sharp falls across the world due to investor’s renewed concern about the health of the global economy after the US Federal Reserve’s decided to leave American interest rates on hold. The Dow Jones Industrial Average closed down 291.7 points ( or 1.75%) to 16,383 points. The S&P 500 lost 32.09 points (or 1.6%) to 1,958.11 and the Nasdaq fell 66.72 points (1.36%) to 4,827.23 points. The Fed is fanning fears over global growth, causing a big selloff: http://t.co/N57fUQRJf4 pic.twitter.com/7cjswWI260 Related: Global shares fall sharply as US rate decision unnerves markets 8.30pm BST Over in Athens tonight, Syriza has held a pre-election rally where Padomes leader Pablo Iglesias has just addressed the crowd with the opening line: “I will speak in Spanish because in Berlin they have to learn what Spanish and Greek sounds like!” He then went on to liken Tsipras to “a lion ... Noone has ever tried to defend your rights like Alexis.” 5.48pm BST The US Federal Reserve may have left interest rates unchanged but the central bank’s cautious comments about the outlook for the global economy sent shudders through global markets. Chris Beauchamp, senior market analyst at IG said: “Markets can be a fickle thing. Going into last night’s Fed meeting, talk revolved around how damaging a rate hike would be to equity markets. It turns out that no hike can also be rather problematic, especially when accompanied by a sober statement and downgrades to economic forecasts. As a result, stocks moved swiftly into the red this morning and have stayed there all day.” 4.41pm BST Christopher Vecchio, Currency Analyst at DailyFX, confirms that a US rate hike this side of Christmas is now less likely than before: The implied probability of a rate hike in October, per the Fed funds futures contract, dropped from near 45% yesterday to 18% today; for December, from above 60% yesterday to 26% today. 4.08pm BST 3.28pm BST Some analysts are arguing today that the Fed has created a new ‘third mandate’, on top of its existing dual duties to deliver price stability and maximum employment. JEREMY ZIRIN, chief equity strategist at UBS Wealth Management, says (_via Reuters_) “Investors are wrestling with how concerned they should be regarding global growth.” “The Fed has introduced a quasi third mandate about the global growth, apart from the labor market and inflation.” 3.22pm BST Every major stock market is in the red, with the exception of the Australian and Hong Kong indices which closed many hours ago before the rout got underway. 3.20pm BST Perhaps we can file today in the ‘inexplicable market reaction’ box. Stocks are acting like they expected more QE yesterday, 2.44pm BST BOND TRADING VETERAN BILL GROSS SAYS THE FED MADE THE RIGHT CALL LAST NIGHT, GIVEN FINANCIAL MARKET CONDITIONS. Speaking on Bloomberg TV right now, Gross suggests that the current era of non-standard monetary policy could last for another five or ten years. Bill Gross says we need low interest rates in order to recapitalize. Watch live http://t.co/H89WEacu1C pic.twitter.com/um4ZAczB26 2.35pm BST US markets have followed the rest of the world lower after the Federal Reserve’s concerns about economic growth. The Dow Jones Industrial Average has lost more than 200 points or 1.2% in early trading, while the FTSE 100 is now 1.6% lower and Germany’s Dax has dropped 3.49%, with investors worried about euro strength against a weaker dollar hitting European exporters. Dow opens down more than 200 points http://t.co/Mnt63OLRu6 pic.twitter.com/Ds2IKg7tMG 2.31pm BST 2.30pm BST The Wall Street opening bell has been rung, and the New York stock market is open for business. 2.23pm BST THE SCALE OF TODAY’S SELLOFF IS A LITTLE SURPRISING, GIVEN THAT THE MARKETS DIDN’T REALLY EXPECT THE FEDERAL RESERVE TO RAISE INTEREST RATES RATES YESTERDAY. But they also didn’t expect the Fed to be quite so gloomy about the global economy. That dovishness is making investors around the globe reassess the prospects of a rate hike. Federal Reserve slightly surprised market participants by combining a decision to leave interest rates where they are with dovish language, and revised down their median short and long-term expectations by 0.25%. Implied probabilities of a Fed rate hike following yesterday’s meeting pic.twitter.com/dNsqvdk1dN 1.55pm BST THE FED DECISION SPARKED A SMALL RALLY IN SOME EMERGING MARKETS, BUT NOTHING SENSATIONAL. India’s Sensex index jumped 2% earlier today, on relief that US rates hadn’t been hiked. The optimism has faded, though, with the index up just 1% in late trading. “I think in the short-term, emerging markets will be supported because the Federal Reserve didn’t tighten. Basically, there’s little bit less pressure for U.S. dollar to appreciate, a little bit more liquidity. “There’ll be some relief particularly, in places like Indonesia, Malaysia, up to places like Brazil, South Africa, Russia. Will it last? The answer is no.” Warning: This market bounce will be short-lived » http://t.co/1Y5CeNECdD pic.twitter.com/qexyUc7dzw 1.46pm BST Traders heading to Wall Street this morning should take their best tin hat. Futures: Dow -200; S&P -24; Nasdaq - 51 1.45pm BST NOW THIS IS CURIOUS. SOMEONE IN THE CITY HAS SOLD SHARES IN TWO BLUE CHIP HEAVYWEIGHTS, BP AND HSBC, WAY BELOW THE MARKET VALUE. Shares in both companies briefly dropped by almost 5%, before swiftly rebounding. C'mon, who did it?! #HSBC pic.twitter.com/Y2yeQTv3cU Someone had a pop at BP stock as well pic.twitter.com/zXXflkce2L @FerroTV It's no fat finger. Someone SAT on a keyboard. 1.40pm BST ANDY HALDANE’S FASCINATING SPEECH (ONLINE HERE) ALSO OUTLINES HOW BRITAIN COULD INTRODUCE A TAX ON MONEY. What I think is now reasonably clear is that the distributed payment technology embodied in Bitcoin has real potential. On the face of it, it solves a deep problem in monetary economics: how to establish trust – the essence of money – in a distributed network. Bitcoin’s “blockchain” technology appears to offer an imaginative solution to that distributed trust problem. Whether a variant of this technology could support central bank-issued digital currency is very much an open question. So too is whether the public would accept it as a substitute for paper currency. Central bank-issued digital currency raises big logistical and behavioural questions too. How practically would it work? What security and privacy risks would it raise? And how would public and privately-issued monies interact? 1.19pm BST THE BANK OF ENGLAND’S CHIEF ECONOMIST IS TRENDING ON TWITTER AFTER WARNING THAT THE UK RECOVERY IS WEAKENING, AND MAY NEED A RATE CUT NOT A HIKE. The editor of the FT is leading the charge: Must read: Andy Haldane on the future of money #BigBrain http://t.co/l69PKc7lVl #Interestrates could actually be cut next, not raised, says @bankofengland economist Andy Haldane. Some fear #ChinaMeltdown & 0% #inflation Migration season for central bank doves? PostFed, BoE's Haldane says may need to cut rates, not raise them http://t.co/n0sBOM1gH6 @ReutersUK 12.51pm BST THE EUROPEAN SELLOFF IS GATHERING PACE, LED BY GERMANY’S DAX INDEX. The longer investors had to ruminate on Thursday’s Fed statement the worse they seemed to take it, with the European indices widening their losses as the day went on. An export-hurting rise in the euro-dollar was the main culprit, with the currency pairing jumping by around 0.4% as the morning continued. 12.13pm BST The futures market is now suggesting chunky falls on Wall Street when trading begins, in two hours time. Out of hours Dow now pointing to a -170 start, back into Tuesday's range. 12.12pm BST THE BANK OF ENGLAND’S CHIEF ECONOMIST IS REITERATING HIS OPPOSITION TO AN INTEREST RATE HIKE IN THE NEAR FUTURE AND SAYS POLICY COULD JUST AS EASILY BE LOOSENED AS TIGHTENED IF THE UK IS HURT BY TURMOIL IN EMERGING MARKETS. “Against that backdrop, the case for raising UK interest rates in the current environment is, for me, some way from being made.” “One reason not to do so is that, were the downside risks I have discussed to materialise, there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target.” How low can you go? - speech by Andrew Haldane http://t.co/w3rPTP8fJq 11.32am BST JANET YELLEN DOESN’T WANT TO GO DOWN IN HISTORY AS THE FED CHAIR WHO PLUNGED THE GLOBAL ECONOMY INTO RECESSION, AND THE US WITH IT. 11.19am BST Wall Street is expected to follow Europe’s lead lower, when the New York stock exchange opens in just over three hours. US indices slipping lower in the overnight markets. Dow currently 80 points lower than yesterday's close. 10.58am BST AFTER JANET YELLEN’S DOVISH PERFORMANCE LAST NIGHT, INVESTORS HAVE ALL-BUT DISCOUNTED THE CHANCES THAT INTEREST RATES WILL BE HIKED AT OCTOBER’S MEETING. And there’s much less confidence that the Fed will raise rates before the end of the year. There’s now more chance that the first hike comes in 2016. The markets now think an Oct rate hike is off the cards, despite Yellen saying the meeting is “live” pic.twitter.com/al1QmDgSvF Implied probabilities of a Fed rate hike following yesterday’s meeting pic.twitter.com/dNsqvdk1dN 10.46am BST YIKES. THE GERMAN DAX IS NOW DOWN ALMOST 2%. The selloff is driven by fears that Germany’s exporters will be thumped by the renewed strength of the euro against the US dollar. 10.12am BST TRADERS NEED TO FASTEN THEIR SEAT BELTS FOR A PERIOD OF HIGH VOLATILITY, WARNS IPEK OZKARDESKAYA OF LONDON CAPITAL GROUP_._ She explains that economic data will be scrutinised more tightly than ever, thanks to the Fed’s new concern about the global economy. The inflation in China and the unemployment in the Eurozone will be as important as onion prices in India and dairy product sales volume in New Zealand. Given the dull economic fundamentals across the globe, it may be hard for the Fed to take the first step before the end of the year. It will be even harder for the market to assess a consensus and to come up with expectations. #Fed inaction adds nothing but turbulence to the market: $TRY $BIST #EM http://t.co/rQnoPTxO8f 9.57am BST Gold miners are benefitting from the Fed’s reluctance to raise interest rates, reports my colleague NICK FLETCHER: Janet Yellen’s concerns about the Chinese economy has undermined leading shares, despite the Federal Reserve chair announcing on Thursday that US interest rates would remain on hold. The worries about the outlook for the global economy have pushed mining shares lower, although precious metal miners are shining on hopes that the Fed decision will weaken the dollar - which is already happening - and lift gold prices. Related: FTSE falters after Fed but gold shines as dollar falls 9.51am BST HSBC’s chief economist reminds us that we’ve been expecting a US rate rise “soon” for a long time. Remember the beginning of the year when everyone said US rates would definitely rise in June? And then September? Still waiting.... 9.46am BST The German stock market is continuing to weaken, now down around 1.3% today. DAX looking ugly. A break below 10068 could have major bearish implications pic.twitter.com/ZQog7mg0Wy 9.28am BST BRITAIN’S INTEREST RATES COULD NOW REMAIN LOWER FOR LONGER, THANKS TO THE FED, ARGUES RBS’S ECONOMICS TEAM. They point out that the two policy rates usually rack each other quite closely, due to a) the amount of trade between the two countries, and b) the US’s pre-eminent position. Why yesterday's #Fed decision not to raise rates matters for the UK. Read: http://t.co/E3IIQqLkPr pic.twitter.com/qN0fs5gkbz 9.21am BST When China sneezes, the US catches a cold and Europe gets the flu. #Fed #PBoC 9.10am BST The Federal Reserve has knocked confidence in the global economy by leaving interest rates unchanged and sounding so cautious, argues JAMEEL AHMAD, FXTM CHIEF MARKET ANALYST. The indication from the Federal Reserve that global economic weakness played a major factor in delaying a US interest rate rise strongly weakens the possibility of an interest rate rise at all this year. Global growth concerns are a reoccurring theme as current suggestions strongly point towards economic momentum in China continuing to slow even further next year. Both the Bank of Japan (BoJ) and European Central Bank (ECB) are going to find themselves under increasing pressure to reinvigorate economic momentum, and the emerging markets remain vulnerable to further weakness. 8.57am BST MARC OSTWALD of ADM INVESTOR SERVICES is fuming about the Federal Reserve’s decision to leave rates unchanged, and sound rather dovish about inflation and China. He points out that the Fed raised its growth forecasts, and lowered its unemployment projection, clearing the way for a rate hike. Instead, weaker global conditions were cited as a reason to ignore these forecasts. If the FOMC’s objective was to convey confusion, it has succeeded, thereby ploughing a deep furrow of instability and destabilization, and shining a very bright light on the large debt and liquidity trap it and other G7 central banks have spent 7 years crafting. Fed no longer a cen bank, just source of confusion, ploughing deep furrow of instability & destabilization, and nightmare of liquidity trap 8.50am BST EUROZONE STOCK MARKETS ARE SUFFERING BECAUSE THE EURO HAS RALLIED AGAINST THE DOLLAR OVERNIGHT. That’s bad for exporters in France and Germany. Question now, how long can the ECB afford to wait? 8.33am BST THE DOLLAR HAS JUST HIT A THREE-WEEK LOW AGAINST MAJOR CURRENCIES, DOWN 0.2%. That reflects the chance that US interest rates may not rise until next year. 8.25am BST GERMANY AND FRANCE’S MAIN STOCK INDICES HAVE BOTH FALLEN OVER 1% IN EARLY TRADING, ECHOING THE SELLOFF IN LONDON. Investors in Frankfurt and Paris aren’t impressed by Janet Yellen’s dovish performance last night, where the Fed chief warned that the slowing Chinese economy could “restrain US economic activity somewhat”. 8.14am BST You might think that ultra-low interest rates would boost stock markets in Europe. But traders are worried that Janet Yellen sounded quite concerned about low inflation and the global economy at last night’s press conference. Markets had anticipated either a DOVISH HIKE (easy does it) or a HAWKISH HOLD (be prepared) [but got neither]. While markets had desired clarity, it appears that UNCERTAINTY (and volatility) MAY BE HERE TO STAY (December hike, Jan, later?). 8.08am BST AND WE’RE OFF! EUROPE’S STOCK MARKETS ARE OPEN, ALLOWING TRADERS TO GIVE THEIR VERDICT ON LAST NIGHT’S FEDERAL RESERVE DECISION. As predicted, shares are dropping in London, with the FTSE 100 losing 33 points or 0.5% to 6153. 7.59am BST WENDELL PERKINS, SENIOR PORTFOLIO MANAGER FOR MANULIFE ASSET MANAGEMENT, RECKONS US INTEREST RATES WILL PROBABLY REMAIN AT THEIR RECORD LOWS UNTIL NEXT YEAR. Perkins also predicts more volatility as the markets react to last night’s Fed decision. 7.55am BST MONEY IS POURING INTO GERMAN GOVERNMENT BONDS THIS MORNING. This is pushing down the yield (_or interest rate_) on debt issued by Europe’s largest member. That’s often a sign of anxiety in the markets. Big moves in European #bond yields following US...German debt rallying, yield dropping 9bps on 10yer pic.twitter.com/St3WcgBPjJ 7.46am BST GOOD MORNING ALL. THERE’S A SUBDUED FEEL IN THE CITY TODAY, AFTER THE FED DISAPPOINTED THOSE HOPING THAT THE FEDERAL RESERVE WOULD RAISE INTEREST RATES LAST NIGHT. “Yes, we’ve got a reprieve on an immediate interest rate hike, but thereason for the stay of execution is rather bearish itself.” Seems Europe gonna follow US equities lower...US on hold highlight risks to global economy&just postpones inevitable? pic.twitter.com/2grwHY02m2 7.27am BST I’m handing over now to my colleague GRAEME WEARDEN who is poised at his work station in London. Thanks for joining me. 7.13am BST 7.07am BST Back in Asia, the Nikkei is still in the doldrums while the other major bourses perform pretty well on the prospect of cheaper money. But in Japan a delay in the US hike has served to strengthen the yen, which is bad for exports and for stock markets. The single most important driver of equity performance in the next year or so is likely to be renewed weakness in the yen. 6.41am BST IG seeing European markets opening down, but only slightly. 6.26am BST THE FRENCH FINANCE MINISTER, MICHEL SAPIN, is in Beijing and he’s being polite about the state of the Chinese economy. It’s a real concern for a lot of people, including America’s finest economic brains. But Sapin said he sees no particularly significant risk from recent stock market turbulence and the recent fall was a “necessary correction”, Reuters reports. 6.21am BST Opinion still mixed on whether the Fed move was the correct one. 6.12am BST CHRIS WESTON FROM IG IN MELBOURNE has delivered his verdict on the day’s events and his view is that the Fed was as dovish as it could possibly have been and would have gone for a rise if it had not been for the August turmoil in China. It seems logical the central bank would have raised rates if it weren’t for recent international developments, but they tried desperately to buy themselves flexibility. It promises to be a very interesting session in Europe and the US, as traders have time to really assess the Fed’s view and what it means for markets. As always, the first move might not be the right move and cooler heads should prevail. 6.03am BST Time for a quick recap on the day’s main news here in Asia Pacific: 5.48am BST As dawn breaks over Europe this is a good time to see what’s happening with the futures markets. And it looks like the main markets will be up with FTSE PREDICTED TO OPEN UP 0.32%, THE DAX IN GERMANY UP 0.26% AND THE CAC IN PARIS UP 0.32%. 5.26am BST Looks like the jury is still well and truly out on whether China’s economy is going to have a hard or soft landing as it decends from the heights of double digit growth. One of the reasons the Fed gave for keeping on hold were “heightened concerns” about the global economy in the wake the sharp selloff on Chinese stock markets in August and whether that means China can keep driving global growth as it has helped to do since the GFC. Developments we saw in financial markets in August partly reflected concerns of downside risk to Chinese economic performance and the deftness with which policymakers are addressing those concerns. 5.14am BST Today’s most interesting data comes from China where home prices inched upwards for a fourth consecutive month in August. Analysts do not expect a full-blown turnaround any time soon, as a huge overhang of unsold homes discourages new construction and investment in all but the biggest cities. 5.04am BST Back to the markets then and the JAPANESE STOCK MARKET has started up again after the lunch break. The NIKKEI is still down though at 18,170, a fall of -1.4%. 4.50am BST Stevens’ testimony before the House of Representatives economics committee was wide-ranging. he also spoke about how he thinks the Australian economy will weather the headwinds facing China which Janet Yellen is so concerned about. Whether that financial volatility itself will serve further to dampen global growth prospects remains to be seen. Sometimes such events portend a wider set of economic events, but just as often, they don’t. There is still a pretty good chance that we will come out of this episode fairly well, and much better than we came out of previous episodes of this type. 4.40am BST GLENN STEVENS, THE GOVERNOR OF THE RESERVE BANk, has weighed into the debate today. Despite suggestions that the Fed might now not raise until 2016, he thinks it will raise rates before Christmas. That means either at its October meeting or in December. Speaking at a parliamentary hearing in Canberra, he said: I would still think an increase in the Fed funds rate is probably going to happen this year. The majority of FOMC [Federal Open Market Committee] members still think that they’re likely to start raising this year, there’s two meetings left. 4.35am BST GLENN STEVENS, THE GOVERNOR OF THE RESERVE BANK OF AUSTRALIA, has been giving evidence today to a parliamentary committee. He has an optimistic view of the economy and thinks it can weather the headwinds threatening China and which are worrying Janet Yellen so much. There is still a pretty good chance that we will come out of this episode fairly well, and much better than we came out of previous episodes of this type. In the period ahead if we can get the non-resources part of the economy to keep improving gradually, build some confidence ... then we’ll get the unemployment rate to come down. We ought be looking to get back into the fives over time, and given enough time I think we will, unless we’re hit by a bad shock somewhere [NB it’s currently 6.2%]. 4.24am BST Nine years is a long time in global economics. Check out that gold price. 4.21am BST As mentioned below, the Australian dollar has benefited from the expectation that US borrowing costs would stay on hold and rein in the long march of the greenback. As a result it has rallied around 2c in the past week or so since sinking to a new six-year low and THIS AFTERNOON IS BUYING US71.95C. 4.11am BST Here’s some more reaction. 4.03am BST It is not in doubt that the Fed intends to raise rates, but the question that has obsessed economists and investors for the past couple of years has always been the timing. For Larry Elliott, the Guardian’s economics editor, Thursday night’s decision shows that the Fed has become ultra-cautious and does not want to risk hiking rates if it has to reduce them again because the recovery is not strong enough. You can read his full article here but this is the main thrust: This is the weakest recovery the world’s biggest economy has experienced in modern times and even now, more than six years after the trough of the recession, there are mixed signals. The Fed is not entirely convinced that it is party time for the US economy. The Fed is also weighing up the implications of a US interest rate increase on emerging markets, and in particular whether the prospect of higher US yields will intensify capital flows out of countries such as China and Brazil. So when will rates rise? When there is a further improvement in the jobs market and when the Fed is “reasonably confident” that inflation is on course to move back up to 2%. Not yet, in other words. 3.58am BST Markets-wise it has been a bit mixed. The expectation was for a hold so the semi-rally in stocks and currencies suchas the Australian dollar in recent days showed that the decision has been priced in. However, there has still been a bit of action, notably in Japan where the Nikkei plunged on the opening before fighting back. 3.35am BST Good afternoon/morning and welcome to the markets live blog following the FED’S DECISION TO KEEP RATES NEAR ZERO. You can read how the action unfolded here as relayed by my colleagues Graeme Wearden and Jane Kasperkevic. But the main takeaway seems to be that the very dovish comments from Fed chair Janet Yellen suggests that she and her fellow committee members might wait until next year to increase borrowing costs. Continue reading...
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| READ THE ORIGINAL POST AT www.theguardian.com |