February 28, 2024

Global Stocks Tumble After Grim Forecast by the Fed

“Today, we really seem to be stuck in a negative spiral,” said Matthias Jasper, head of equities at WGZ Bank in Düsseldorf. “Investors just want to keep their exposure low and watch from the sidelines.”

In the opening minutes of Wall Street trading, the Dow Jones industrial average was down 301.06, or 2.7 percent, 10.823.78. The Standard Poor’s 500-stock index lost 2.6 percent, and the Nasdaq composite was down 2.7 percent.

In afternoon trading Thursday in Europe, the benchmark Euro Stoxx 50 index, the FTSE 100 in London and the CAC-40 in Paris were all down between 4 and 5 percent.

As well as fears about the economic outlook on both sides of the Atlantic, investors have been unnerved by the failure of policy makers in the 17-nation euro zone to resolve the region’s debt crisis.

On Wednesday, the Fed said a complete economic recovery was still years away, adding that the United States economy has “significant downside risks to the economic outlook, including strains in global financial markets.”

It also said it would buy long-term Treasury bonds and sell short-term bonds to help stimulate lending and growth.

Meanwhile, a closely watched economic report from the euro zone — the composite purchasing managers’ index — fell to 49.2 in September from 50.7 in August, according to Markit, a financial data provider. The reading, released Thursday, was below the consensus forecast of 49.8. Both the manufacturing and services indexes declined.

“The initial and follow-up reaction from the equity market is likely the realization that the Fed has little left to offer, that Washington is a mess, and their only hope is to “ride it out” over a long period of time,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company.

“This is about to get ugly and there is very little anyone can do about it,” he added in a research note.

Stocks had fallen in the United States 2 percent or more on Wednesday after the Federal Reserve announcement.

On Thursday, the yield on 10-year United States Treasury securities hit a new low of 1.76 percent in London. After the markets opened in the United States, the benchmark bond yield was 1.77 percent.

Commodities fell. Comex gold futures were down nearly 4 percent at about $1,737 just before Wall Street opened, while crude oil futures traded in New York were down more than 6 percent at $80.57 a barrel.

The Fed pointed to a number of long-term problems in the American economy, including high unemployment and a depressed housing market. In addition Moody’s Investors Service downgraded ratings on three big American banks — Bank of America, Wells Fargo and Citigroup — saying government support had become less likely in the event of financial trouble.

The Fed’s statement “continued to suggest that the Fed funds rate will remain on hold until at least mid-2013,” said Rob Carnell, an analyst at ING in London. He added that quantitative easing could be introduced as early as November.

Analysts said the fall in the euro-area index reflected a combination of slowing global growth, significant belt-tightening in the euro area and growing concern about the escalating sovereign debt crisis.

“Whether or not the economy dips into another recession largely depends on whether governments move to contain the crisis,” said Nick Kounis, head of research at ABN AMRO in Amsterdam. “These surveys suggest that the window of opportunity is closing fast.”

“Clearly the risks of recession are elevated,” he added.

The weak economic backdrop appeared to give added importance to a series of meetings in Washington in coming days at the International Monetary Fund and World Bank.

Mr. Jasper of WGZ Bank said the gloomy economic backdrop belied the fact that many companies in Europe are in fact in a positive position in terms of their order books, profit margins and cash positions.

“We’re in a politics-driven market, and it’s hard to see light at the end of the tunnel until we have a workable solution for Greece and stabilization of the situation in Italy and Spain,” he said

In Europe there was still uncertainty about the fiscal outlook for Greece and Italy.

Christine Hauser, Niki Kitsantonis, Elisabetta Povoledo, Kevin Drew, Robert Pear and Jennifer Steinhauer contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=0097ecf6f2e80310a6a7698d4b4b385a

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