The ultra-powerful US central bank has made it clear that it is moving closer to declining support for the US economy, a sign that it believes the worst of the crisis is over, but concern for equity investors.
About $ 120 billion a month poured into Fed markets, and minutes from a July meeting showed officials agreed it was time to start reversing that policy.
This should mean that rates go up and bonds become more attractive relative to stocks in just a matter of weeks.
Asian markets took the hint, all taking a hit.
Kay Van-Petersen of Saxo Capital Markets in Singapore said, “You can’t find a bull there. “
The FTSE 100 lost 160 points to 7008, its lowest in about a month. It’s still up over 440 points this year, however, good news for the thousands of new investors drawn to stocks during the lockdown.
Fund managers and commodity giants bore the brunt of the losses today, with M&G and Abrdn down 5%.
European markets did not do better. In Paris, the Cac 40 is down 2.5%, the luxury brands being the most affected.
James Knightley, chief international economist at ING, said: “The minutes from the July FOMC meeting show a Fed fairly divided on most things, but acknowledges that we are getting a lot closer to the cut-off point. Officials have offered more vocal support in recent days to earlier action and we anticipate an announcement in September, but it’s clear the Covid resurgence could delay it. “
St Louis Fed boss James Bullard said the Fed “should engage in the reduction” because “the economy has adapted”, adding that “I don’t see the delta variant stopping this process “.
Oil prices fell for the sixth day in a row, with Brent crude barely above $ 67, the lowest since May.
This reflects fears that new cases of Covid could trigger lockdowns, or at least a slowdown in economic activity.
This pushed the dollar up a touch to $ 1.36 against the pound as it retains its safe haven status regardless of US military or political misadventures.
With actions taking a bath, some in the city are asking if today’s fall is a blow or a sign of turbulence to come.
Russ Mold at AJ Bell said: “The question now is whether a volatile week is the prelude to the kind of late summer sell-off we’ve seen in previous years or if the market can regain its equilibrium before the fall.”
Economic growth is expected to slow in the second half of the year.
As the US market opened, the Dow Jones fell from 55 to 34,906. It lost over 600 points in the last week of trading.