BCN-17, 18 ‘Domino effect’ hits stocks as Trump slams Fed

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‘Domino effect’ hits stocks as Trump slams Fed

LONDON, Oct 11, 2018 (BSS/AFP) – A global stock market downturn worsened
Thursday as investors, spooked by a plethora of economic woes, dumped shares
that suddenly looked dangerously overvalued.

The extent of European equity falls almost matched the previous day’s
tumble at the close, while Wall Street was also in the red again, having
earlier tried, and failed, to recapture positive territory.

“Global sentiment remains skittish amid the recent rise in global bond
yields, led by Treasuries, as well as concerns about the Fed tightening
policy too much despite rising risks,” said Charles Schwab analysts.

Mounting worries over high interest rates and trade battles, although
hardly new, have reached boiling point, said analysts, who were wary of
predicting the markets’ next moves.

“It looks like we could be in for another difficult day on Wall Street,
but the acid test will be if the benchmarks close below yesterday’s levels,”
said David Madden at CMC Markets.

– Just the beginning? –

Crucially, investors seemed to be finally grasping that the American
economy is facing a slowdown, sparking fears that the current market downturn
may just be the beginning, said Oliver Jones at Capital Economics.

“Investors are starting to factor in the prospect of the US economy
slowing in response to tighter monetary policy,” he said. “We think that this
will start to happen in 2019, causing equities in the US and elsewhere to
fall much further.”

US President Donald Trump earlier blamed “crazy” policies of the Federal
Reserve for contributing to financial market turmoil, although the White
House later said he was not trying to dictate Fed policy.

“In the absence of a specific trigger, investors are currently voting with
their feet,” said Richard Hunter, head of markets at Interactive Investor.

US Treasury Secretary Steven Mnuchin, meanwhile, said that Wall Street’s
rout was “somewhat of a correction”.

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International Monetary Fund chief Christine Lagarde defended central bank
rate hikes in a veiled rebuke to Trump.

“It is clearly a necessary development for those economies that are
showing much improved growth, inflation that is picking up… unemployment
that is extremely low,” she told a press briefing in Bali, host to annual
meetings of the IMF and World Bank this week.

– All bets off –

The IMF on Tuesday cut its global GDP growth forecast by 0.2 percentage
points to 3.7 percent for both 2018 and 2019, citing economic uncertainties.

“All bets are off,” warned Stephen Innes, head of Asia-Pacific trading at
OANDA, adding that markets were “fraught with peril”.

Among Asia’s biggest stock market losers Thursday were Shanghai and
Taipei, closing down 5.2 and 6.3 percent respectively. Chinese stock markets
plunged to their lowest levels in four years.

“Interest rate put aside, the Sino-US trade spat is to blame for the
October market rout because people are worried the friction would evolve into
a political confrontation,” Guangzhou Wanlong Securities said in a research
note.

Trump’s latest criticism of the Federal Reserve gave investors another
headache.

“I think the Fed is making a mistake,” Trump told reporters as he arrived
for a campaign rally ahead of the US mid-term elections.

Trump has repeatedly touted Wall Street records as proof of the success of
his economic programme.

Oil fell after OPEC Thursday cut its forecast for world demand for this
year and next.

BSS/AFP/HR/1055