Global equities stumble ahead of Powell’s Fed speech

Global stocks wavered on Thursday ahead of Friday’s Jackson Hole speech from Federal Reserve chair Jay Powell.

The blue-chip S&P 500 index closed down 0.6 per cent, with four-fifths of the stocks in the benchmark declining, its first losing day in a week. The technology-heavy Nasdaq Composite also slipped 0.6 per cent and the global stock barometer FTSE All-World index fell 0.5 per cent.

Investors will be watching on Friday for clues from central bank policymakers as to when the Fed may begin removing its crisis-era stimulus measures as the US economy and labour market rebound from the pandemic.

The virtual meeting of central bankers sponsored by the Kansas City Federal Reserve — normally hosted in Jackson Hole, Wyoming — will be headlined with a speech on Friday morning by Powell.

While most investors do not expect Powell to announce that the Fed will begin tapering its $120bn-a-month asset purchase programme, some central bank officials made hawkish statements on Thursday that gave markets a pause. Among them were James Bullard, St Louis Fed president, who said the Fed was “coalescing” around a plan to reduce the bond-buying programme.

The Fed’s asset purchases have helped buoy stocks since the beginning of the coronavirus pandemic and its eventual curtailment has been top of investors’ minds in the country’s $51tn equity market.

“The fact remains we have monetary policy settings at emergency levels,” said Steven Bell, chief economist at BMO Global Asset Management. “The fire is nearly out. It’s not appropriate to keep easing monetary policy.”

Bell said indicators such as signs of increasing wage inflation would be important measures for the decision on when to begin the taper.

The yield on the 10-year US Treasury was little changed on Thursday at 1.34 per cent, although it has risen roughly 0.09 percentage points so far this week.

Industry participants have said trading conditions in the $22tn US government bond market have worsened recently, which is something that could exacerbate volatility around big economic events like Jackson Hole.

In Europe, the region-wide Stoxx 600 closed down 0.3 per cent, while the UK’s FTSE 100 and Germany’s Dax declined 0.4 per cent. France’s CAC 40 slipped 0.2 per cent by the end of trading. Volumes were lighter than average with many industry participants on summer holiday.

Asian markets remained under pressure, with Hong Kong’s Hang Seng index trading down 1.1 per cent. Short-video platform Kuaishou, a Chinese group listed in Hong Kong, tumbled 9.2 per cent after weaker than expected second-quarter earnings. Meanwhile, South Korea became the first big Asian economy to raise interest rates since the start of the pandemic.

Elsewhere, commodities slipped, with global oil benchmark Brent crude down 1.6 per cent at $71.07 a barrel, while the US marker West Texas Intermediate settled 1.4 per cent lower at $67.42 a barrel.

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