A gloomy outlook from the US Federal Reserve knocked European and Asian stocks on Thursday, and Wall Street futures pointed to further declines in the US when markets open.
Minutes from the July meeting of central bank rate setters published on Wednesday show several policymakers highlighted increased uncertainty over the economic outlook for the US.
The Fed’s growth forecasts for real GDP and the pace of declines in the unemployment rate in the second half of the year were now expected to be “somewhat less robust than in the previous forecast.” Members of the Federal Open Market Committee (FOMC) had voted to hold interest rates near zero at the meeting.
Officials said additional monetary stimulus could be needed, with employment gains slowing since mid-June. But stocks partly dropped as policymakers also showed “less aggressive intent to provide guidance on the path of interest rates that had been signalled in an earlier meeting,” according to John J Hardy of Saxo Bank.
The comments derailed a Wednesday rally on Wall Street, which had seen Apple briefly become the first ever US company to hit a $2tn market capitalisation, and the Nasdaq hit new record intra-day highs.
The comments from the world’s most important central bank also hit stocks worldwide.
In Asia, South Korean shares ended 3.7% lower overnight, compounded by alarm over rising COVID-19 infections, in the steepest daily decline in two months.
European markets then followed Asia lower on Thursday morning. Britain’s FTSE 100 (^FTSE) was down 1% in early trading, Germany’s DAX (^GDAXI) lost 1.1% and France’s CAC 40 (^FCHI) lost 1.3%. Italy’s FTSE MIB (FTSEMIB.MI) lost 0.8%.
“FOMC minutes are casting a shadow over markets and underline that any recovery is not going to be a straight line of advances,” said Neil Wilson, chief market analyst at Markets.com.
“The Fed layered on the risks and caution thick, but didn’t come up with any sweeteners for the market in the shape of more easing.”
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