Stocks on longest slide as Fed caution hits

20/03/2018 05:20 AST

Share markets were stuck on their worst run since November on Monday, as caution gripped traders in a week in which the Federal Reserve is likely to raise US interest rates and perhaps signal as many as three more lie in store this year.

A 0.6-1.3 per cent drop for Europe’s main bourses amid a flurry of gloomy company news and weaker Wall Street futures meant MSCI’s main 47-country world stocks index was down for a fifth day.

The caution also came against the backdrop of global trade war worries which are set to dominate a two-day G20 meeting starting later in Argentina as well as plenty of idiosyncratic factors.

Facebook shares slumped 3.7 per cent in premarket trading after reports that 50 million of its users’ data had been misused by a political consultancy firm ahead of the 2016 US election and Brexit vote.

London’s FTSE was down double the rest of Europe as a savage profit warning wiped more than half the value off one of its big tech firms, even as a two-year Brexit transition deal gave the pound its best day in almost two months against the euro.

A Reuters report that the ECB is starting to think a bit more about the future pace of eurozone interest rate rises helped the euro recover from a difficult morning against the dollar.

It had struggled as the gap between 10-year German and US government yields, referred to as the ‘transatlantic spread’, ratcheted out to its widest since December 2016.. Many analysts had been expecting that spread to be narrowing as the ECB nears the end of its stimulus programme, but it hasn’t proved the case. The shorter-dated 2-year borrowing cost gap is near its widest level in over 20 years.

“There has been the narrative of supposed policy convergence between the ECB and the Fed, but that is just not the reality,” said Saxo Bank’s head of FX strategy John Hardy. With as many as four hikes seen this year, expectations were “chomping at the max” he added.

Weakness in equity markets was almost worldwide, meanwhile.

Japan’s Nikkei had ended down almost 1 per cent as its exporters were hit by more overnight strength in the yen which eventually reversed in early US trading.

The rest of Asia had struggled too, though China did manage to eke out some gains as Beijing announced a new economic team. It included a surprise new central bank chief but for the most part was largely as anticipated and is expected to keep the focus on halting riskier types of lending in the giant economy. FED AHEAD Wall Street look set to lose more ground when New York reopens having seen the Dow lose 1.57 per cent last week, the S&P drop 1.04 per cent and the Nasdaq 1.27 per cent.

The Gulf Today