Global stocks down as growth and taper fears haunt markets

Stocks and bond yields dropped and the dollar hit a nine-month peak on Thursday as fears of slowing global growth into year-end were compounded by the prospect of the Federal Reserve cutting back its supportive bond purchase programme at the same time.

Europe’s pan-regional STOXX 600 index (.STOXX) suffered its biggest daily decline in a month. Its near-2 per cent slide dragged the global stocks benchmark (.MIWD00000PUS) to a three week low. Emerging market stocks (.MSCIEF) sank to their lowest this year.

US futures suggested more pain ahead on Wall Street , and commodities were under pressure with oil down for a sixth straight session and at three-month lows. Growth bellwether copper hit its lowest in more than four months.

The latest selloff comes after minutes from the Federal Reserve’s July meeting published on Wednesday showed officials expected they could ease stimulus this year, even though there was division over the labour market recovery and the level of risk posed by rising coronavirus cases. read more

Fed policymakers were far from united in their view. But the prospect of stimulus being reduced when the rapid spread of the Delta variant, China’s regulation crackdown and supply chain issues were already dampening the economic recovery spooked markets.

“It is just a sea of red and top of the agenda is, what the Fed is going to do,” said Neil MacKinnon, global macro strategist at VTB Capital in London.

“The big picture story is: Could the Fed be making a policy error here? It wants to taper, we’ve seen that message in the FOMC minutes, but could the Fed be tapering into a cyclical economic slowdown in the third and fourth quarters? There’s a risk of that.”

The focus now shifts to the Fed’s annual research conference in Jackson Hole, Wyoming, next week where central bankers from around the globe gather and Fed chair Jerome Powell is due to give a speech which will be scoured for clues on the central bank’s next steps.

SAFE HAVENS SHINE

Meanwhile the dash to safe haven assets helped US Treasury yields cling to recent lows, with benchmark 10-year yields at 1.24 per cent .

Euro zone government bond yields also fell with German 10-year Bund yields , the benchmark for the bloc, falling a basis point to -0.49 per cent, within touching distance of a six-month low hit earlier this month.