Stock markets ease on shifting Fed expectations, dodgy growth outlook
AFP – World stock markets were mostly lower Monday amid worries about slowing global growth and diminishing hopes for an aggressive Federal Reserve interest rate cut.
Taking their cue from an earlier sell-off in Asia, European stock markets weakened as steep reductions in US borrowing costs appeared to be off the cards, at least for now.
Among the leading European indices, the blue-chip CAC 40 in Paris, the DAX 30 in Frankfurt and London’s FTSE all ended the day in the red.
On the other side of the Atlantic, Wall Street stocks also retreated for a second straight session.
US stocks have pulled back since all three indices closed at records on Wednesday following a cease-fire on new tariff actions in the US-China trade war and amid hopes for easier monetary policy.
But the strong US jobs report Friday dented expectations of an aggressive move by the Fed to cut interest rates.
All eyes now are on Fed Chair Jerome Powell who is set to make his semi-annual congressional appearances this week.
Investors also will keep an eye on consumer price data, another factor considered by the Fed.
But Morgan Stanley warned that stocks were vulnerable even if the Fed cuts interest rates, and lowered its rating on equities to "underweight," based on an assessment of the pluses and minuses of move by the central bank.
"Our concern is that the positives of easier policy will be offset by the negatives of weaker growth," Morgan Stanley said in a note.
"We think a repeated lesson for stocks over the last 30 years has been that when easier policy collides with weaker growth, the latter usually matters more for returns."
– Turkish lira pressured –
While the dollar was steady against its main rivals, it surged against the Turkish lira after President Recep Tayyip Erdogan sacked the head of the country’s central bank following months of tensions over high borrowing costs.
Erdogan, who is battling to boost Turkey’s struggling economy, has repeatedly railed against high interest rates and called for them to be lowered to stimulate growth.
"The Turkish lira is sliding once again amid renewed concerns that Erdogan is ruining the nation’s economy, just as inflation was starting to ease back," said Forex.com analyst Fawad Nazagzada.
"His decision to replace the Turkish central bank governor over the weekend has backfired with the lira taking a tumble. Undoubtedly, some investors are concerned that monetary policy will now be loosened prematurely, and this could prevent a convincing drop in inflation."
Among individual companies on Wall Street, Apple fell 2.1 after Rosenblatt Securities downgraded shares in part due to expected weakness in iPhone sales.
Boeing shed 1.3 percent after Saudi budget carrier flyadeal withdrew an order for the grounded 737 MAX jets in favor of a fleet entirely composed of Airbus planes.
US shares of Deutsche Bank slid 6.1 percent after the German bank announced it would cut 18,000 jobs by 2022, around one-fifth of the workforce. Shares fell 5.4 percent in Frankfurt.
– Key figures around 2040 GMT –
New York – Dow: DOWN 0.4 percent at 26,806.14 (close)
New York – S&P 500: DOWN 0.5 percent at 2,975.95 (close)
New York – Nasdaq: DOWN 0.8 percent at 8,098.38 (close)
London – FTSE 100: DOWN 0.1 percent at 7,549.27 (close)
Paris – CAC 40: DOWN 0.1 percent at 5,589.19 (close)
Frankfurt – DAX 30: DOWN 0.2 percent at 12,543.51 (close)
EURO STOXX 50: DOWN 0.1 percent at 3,523.76 (close)
Tokyo – Nikkei 225: DOWN 1.0 percent at 21,534.35 (close)
Hong Kong – Hang Seng: DOWN 1.5 percent at 28,331.69 (close)
Shanghai – Composite: DOWN 2.6 percent at 2,933.36 (close)
Euro/dollar: DOWN at $1.1211 from $1.1225 at 2100 GMT Friday
Dollar/yen: UP at 108.75 yen from 108.47 yen
Pound/dollar: DOWN at $1.2512 from $1.2521
Brent North Sea crude: DOWN 12 cents at $64.11 per barrel
West Texas Intermediate: UP 15 cents at $57.66 per barrel