By Marc Jones
LONDON (Reuters) – World stock markets slipped on Thursday as the U.S. Federal Reserve and a trio of Europe’s top central banks warned about rising levels of global uncertainty.
Trade war and actual war worries pushed Europe’s main share indexes down almost 1%. Wall Street futures were 0.5% in the red, while safe-haven government bonds were back in demand and gold hit its latest record high. [.EU][/FRX][/GOL][O/R]
A central bank triple header provided a unerringly common theme in Europe too.
“There’s a lot of economic uncertainty at the moment,” Bank of England Governor Andrew Bailey said as the BoE held UK interest rates.
Both Switzerland’s and Sweden’s central bank chiefs also warned that uncertainty around the global economy and inflation had increased significantly.
“The Fed yesterday, the Riksbank, the SNB, the BOE today – central banks are all looking at very noisy data and rising geopolitical risks,” said James Rossiter, senior global strategist at TD Securities.
“And markets are juggling that to the same degree. There is low conviction in markets, just as there is low conviction among central banks… everyone is just waiting to see.”
The Fed on Wednesday left U.S. rates unchanged but traders were pleased to see it maintain a projection for two quarter-percentage-point rate cuts by year-end.
Policymakers revised up their inflation forecast for the year however and marked down their outlook for economic growth, citing risks from U.S. President Donald Trump’s tariff policies.
Still, investors took comfort from the Fed’s “dot plot” and Chair Jerome Powell’s comments that tariff-driven inflation would be “transitory” and largely confined to this year.
“We think unemployment will be the ultimate arbiter,” PIMCO economist Tiffany Wilding said, predicting the Fed would “cut aggressively” if the jobless rate starts to move higher.
All the uncertainty and unknowns around inflation saw gold scale yet another record high of $3,057.21. [GOL/]
In the bond markets, U.S. Treasury yields were back under 4.2% and Germany’s Bund yields eased to 2.77% having hit a 1-1/2 year high of 2.938% last week. [GVD/EUR]
The dollar meanwhile jumped 0.6% having just hit a 5-month low. It rose to $1.0832 against the euro, $1.2951 against the pound and to 148.60 yen.
Sterling climbed as far as $1.3015 – a four-month high – overnight. The Bank of England’s move to keep UK rates at 4.5% came with a warning against assuming they would be cut in the coming months.
“The Bank of England is stuck between a rock and a hard place with inflationary pressures mounting alongside a weak growth outlook,” said Zara Nokes, global market analyst at JP Morgan Asset Management.
Both Switzerland’s SNB and Sweden’s Riksbank had already come out with their decisions earlier in the day.
The former trimmed its borrowing costs to just 0.25% with a warning about U.S. trade tariffs, while the Swedes kept theirs at 2.25% amid stubborn inflation and a sluggish economy.
There was little reaction, other than a fractional dip by the Swiss franc.
SNB Chairman Martin Schlegel said uncertainty around the global economy and inflation had increased significantly. “At present, the risks are predominantly to downside,” he said.
CHINA DRAGS
U.S. stock indexes were set to open lower, as worries about the fallout from U.S. tariff policies crept back into markets. [.N]
The post-Fed reaction failed to rally Asia overnight, with MSCI’s broadest index of Asia-Pacific shares outside Japan finishing its day flat.
That was mainly due to China and Hong Kong.
Both markets have been on hot streaks this year, but Thursday’s 2.2% drop in the Hang Seng was its worst of the month and Chinese online giants Tencent and Baidu both tumbled nearly 4% as their respective 30% and 70% gains this year ran out of steam.
Carlos von Hardenberg co-founder of MCP Emerging Markets described the recent surge in China tech stocks as “a bit of a sucker’s rally, because it reached the point where the valuation was getting completely out of whack”.
“I think it could evaporate almost overnight because we are in the middle of a gigantic war about technology leadership.”
China’s central bank held its benchmark lending rates steady for the fifth straight month, matching market expectations.
The yuan, which has been pressured by China’s wide yield differentials with the United States, barely budged at 7.2354 per dollar in the onshore market. Its offshore counterpart inched down 0.1% to 7.2383 per dollar.
Elsewhere, the Australian dollar tumbled 1% in response to weaker-than-expected employment figures while data showing New Zealand’s economy grew faster than forecast at the end of last year could not prevent a 1.2% drop in the Kiwi dollar.
In commodities, oil prices ticked down as a higher-than-expected fuel inventory drawdown in the U.S. and renewed tensions in the Middle East countered strength in the dollar.
Brent crude futures dipped to $70.8 a barrel, while U.S. West Texas Intermediate crude (WTI) hovered at $67.11 per barrel. [O/R]
(Reporting by Marc Jones; Editing by Kirsten Donovan)
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