Stocks sold off around the world on Thursday as central banks on both sides of the Atlantic held off from injecting more stimulus despite fragile recoveries in both the US and UK.
On Wednesday, the US Federal Reserve kept interest rates near zero and signalled they were likely to stay that way until at least 2023. Chairman Jerome Powell said the US economy was recovering quicker than expected but warned the outlook was uncertain.
Then on Thursday, the Bank of England followed suit by leaving its major monetary policies unchanged. However, the central bank said rising COVID-19 cases in Britain could derail its fragile economic recovery and warned that the outlook was “unusually uncertain.”
US stocks initially rose on Wednesday when the Fed statement was released, but began falling as Powell delivered his press conference. Only the Dow closed in the green and, by Thursday morning, US futures were deeply negative across the board.
After shedding 1% at the open, US stock markets mostly pared back their losses as the day went on. By the time the European trading day ended, the S&P 500 (^GSPC) was down 0.8% and the Dow Jones (^DJI) was 0.2% lower, although the Nasdaq (^IXIC) was still 1.5% lower.
The risk-off sentiment in the US hit European equities, which traded down throughout Thursday’s session. Britain’s FTSE 100 (^FTSE) ended the day down 0.3%, Germany’s DAX (^GDAXI) closed down 0.2% lower, and France’s CAC 40 (^FCHI) shed 0.5%.
Despite the sell-off, neither the Fed or Bank of England delivered any surprises in their monthly updates.
“On paper, this is all pro-market stuff,” Connor Campbell, a financial analyst at SpreadEx, said of the Fed update.
“Yet, though nothing was necessarily expected, a lack of fresh stimulus seems to have disappointed investors, especially coming alongside as it did a reminder that the country’s recovery is in danger if Congress doesn’t pass a bipartisan spending plan.”
Campbell said investors had also “picked up on the notes of concern sprinkled throughout the [Fed] statement.”
European auto stocks came under early pressure after the European Automobile Manufacturers Association said new car sales fell by 18.9% in August across the EU. However, manufacturers’ stock had largely recovered by the end of the day.
Asian stocks had sold-off overnight, although not as steeply. Japan’s Nikkei (^N225) fell 0.6% and the KOSPI (^KOSPI) in South Korea dropped 1.2%. In China, the Shanghai Composite (000001.SS) fell 0.4% and the Shenzen Component (399001.SZ) was flat. The Hong Kong Hang Seng (^HSI) dropped 1.7%.