Global Stocks Pause as Markets Parse Fed's Growth Concerns
March 21 2019 - 8:35AM
Dow Jones News
By David Hodari
Global stocks were mixed Thursday as markets digested the
Federal Reserve's signal of no more rate increases this year and a
sharply lower forecast for U.S. growth.
Futures put U.S. indexes on course to open lower, with the Dow
Jones Industrial Average set to open 0.2% lower and the S&P 500
looking to open 0.1% lower. Johnson & Johnson shares were down
0.9% in premarket trade, while Boeing shares were set to slip 0.3%,
despite the company announcing plans to fix its 737 MAX
airplane.
Government bond yields and banking stocks extended losses, which
began Wednesday after the Federal Reserve's decision to leave its
policy rate unchanged and Chairman Jerome Powell's comment that "it
may be some time before the outlook for jobs and inflation calls
clearly for a change in [interest rate] policy."
The yield on 10-year U.S. Treasurys slipped to a fresh 14-month
low of 2.513% from 2.537% late Wednesday, with yields falling as
prices rise. Yields fall as prices rise. The WSJ Dollar Index,
meanwhile, edged up 0.1% although remained 0.7% lower over the past
five days.
While investors had widely expected a soft tone from the central
bank, you don't want to overcommunicate how dovish you are," said
Geoffrey Yu, head of the U.K. investment office at UBS Wealth
Management. "There's a difference between markets expecting you to
be dovish and then actually being very dovish because that raises
the question of whether they know something we don't."
Banking stocks were down slightly ahead of the U.S. opening bell
after financial companies in the S&P 500 dropped 2.1%
Wednesday. Lower yields pressure financial institutions' net
interest margins and crimp their ability to generate profits.
European financial companies faced similar pressure, with the
Stoxx Europe 600's banking basket down 1% as yields on government
bonds fell. Benchmark 10-year German government bonds yielded
0.043% Thursday from 0.08% the day before.
The broader Stoxx Europe 600 was down 0.1% in late morning
trading, with financial sector losses somewhat mitigated by buoyant
basic resources and energy baskets -- up 1.1% and 0.7% -- with the
slip in the U.S. dollar that followed the Fed's decision boosting
dollar-denominated commodities.
Energy futures reversed some of their gains, though, with Brent
crude oil last down 0.3% at $68.29 a barrel, although remained up
1.7% so far this week. West Texas Intermediate futures fell 0.5% on
the day to $59.95 a barrel although remained 2.4% higher since
early Monday.
U.S. figures have been relatively upbeat when compared with
figures from other major global economies this year. In that
context, markets will continue to scrutinize briefings from other
central banks. The Bank of England was due to announce its monetary
policy decision later Thursday.
Stocks have rallied so far this year despite bond-market signals
that investors remain concerned about weak growth figures out of
major global economies. That divergence is unlikely to continue,
investors said.
"You can't have a bond market saying the Fed's going to have to
cut rates and an equity market ignoring that," said Larry Hatheway,
chief economist and head of investment solutions at GAM Holding. "I
tend to think the bond market is mispriced for the likely
outcome."
The yearlong trade spat between the U.S. and China is one of the
factors economists have cited as playing a part in ebbing global
growth. That said, Asian markets were mixed, despite President
Trump's comments that a trade deal with China isn't imminent and
the U.S. expects to keep tariffs on Chinese goods in place for a
"substantial period of time," even after a trade deal.
Hong Kong's Hang Seng benchmark fell 0.9%, although indexes in
China, South Korea, and Taiwan notched gains of less than 1%
despite Japanese markets were closed for a public holiday.
The British pound fell 0.5% against the U.S. dollar, and the
U.K.'s FTSE 100 rose 0.6% -- the two tend to move in opposite
directions -- as Britain's attempts to leave the European Union
faced fresh complications.
Prime Minister Theresa May asked the EU on Wednesday to delay
its departure from the bloc until June 30, but EU leaders signaled
their reluctance to back a postponement. Analysts played down the
chances of victory for the prime minister's deal on the third
attempt and suggested a rising likelihood of a 'no deal'
Brexit.
Write to David Hodari at David.Hodari@dowjones.com
(END) Dow Jones Newswires
March 21, 2019 08:20 ET (12:20 GMT)
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