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European stocks retreat in face of Fed rate hike
LONDON, Dec 21, 2018 (BSS/AFP) – European and Asian stock markets slumped
Thursday as investors were seized by fears that the US Federal Reserve hiking
interest rates could choke economic growth.
Wall Street stocks, which had tumbled Wednesday after the Fed defied
unprecedented pressure from President Donald Trump to raise rates, slid
further at the opening bell on Thursday.
In Japan, the Nikkei plunged to a 15-month low after the Dow’s struck its
lowest level of 2018 on Wednesday.
Oil prices meanwhile dived to fresh 15-month lows, prolonging volatility
that has gripped the crude market in recent weeks.
In Europe, London’s benchmark FTSE 100 index was down 0.5 percent, with
losses capped by stronger-than-expected UK retail sales data.
In the eurozone, Frankfurt’s DAX 30 shed 1.6 percent and the Paris CAC 40
slumped 1.8 percent. Both are near lows for the year.
The euro, meanwhile, hit a six-week high at $1.1486.
On the corporate front, shares in Airbus plunged nearly 10 percent after
French daily newspaper Le Monde said the European aircraft maker could face
fines of several billion dollars under a US corruption probe.
– All about the Fed –
The Federal Reserve on Wednesday raised US interest rates for the fourth
time this year — as expected — but markets reacted badly after chairman
Jerome Powell said the bank would not shift course on reducing its balance
sheet.
Investors had hoped for a less aggressive approach amid concern that
global growth is slowing, while Powell played down the impact of recent
market turmoil on the US economy.
Markets “think the Fed has completely misjudged the situation and now it’s
just a matter of… trying to find an exit while you can”, said Kyle Rodda,
analyst at IG Group in Melbourne.
“We’re probably entering a stage now where markets have got it (in) their
head that we’re preparing for quite sustained downside going into 2019.”
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The Fed now predicts two interest rate increases next year, down from
three, as it trimmed its forecast for US growth and inflation.
“The market overreacted to the Fed, I think,” said Shane Oliver, head of
investment strategy at AMP Capital Investors.
“It is moving in a dovish direction and is on track for a pause in the
first half of next year. Markets are being driven by fear rather than
fundamentals.”
But the spillover from the rate hike continued to rattle investors,
deepening concern over global growth prospects which are already facing
headwinds from Trump’s trade war with Beijing, a slowing Chinese economy, and
potential turmoil from Britain quitting the European Union.
Japanese stocks declined also after the Bank of Japan left ultra-low rates
unchanged, with the threat of trade protectionism and slowing global growth
casting a pall over the export-driven economy.
A strong yen also put downward pressure on stocks, with the dollar falling
below 112 yen.
Oil prices meanwhile tumbled Thursday, with Brent striking $54.64 per
barrel, the lowest level since September 2017.
Crude reversed strong gains won a day earlier on concerns about growth and
oversupplies of US oil, and tracking equity losses.
A smaller than expected fall in US crude stockpiles added to supply glut
fears triggered earlier this week by forecasts of increasing shale oil
production.
BSS/AFP/HR/0930