Stocks Mixed as Fed's Dovish Turn Boosts Markets, Raises Questions on Growth
London (March 21) Global stocks traded higher Thursday, as asset prices around the world rallied following the U.S. Federal Reserve's decision o remove any prospect of a rate hike this year while warning of slowing economic growth, although gains were capped by comments on China tariffs from President Donald Trump.
The Fed's interest rate decision, which kept its key policy target unchanged at 2.25% to 2.5%, was followed by a series of measures that cemented the bank's dovish view and underscored concern over the strength of the domestic economy.
Chairman Jerome Powell told reporters that he would remain "patient", monitoring incoming data and developments in the global economy, and would be unlikely to move on rates until early next year. In the meantime, he said, the Fed will freeze bond sales from its $3.8 trillion balance sheet later this autumn.
"It may be some time before the outlook for jobs and inflation calls clearly for a change in policy," Powell said. "Patient means that we see no need to rush to judgment."
The collective canvas of the Fed's outlook, which forecasts a growth rate for the U.S. economy of 2.1%, nearly a full percentage point below official estimates from the White House, clipped U.S. Treasury bond yields, flattened the yield curve and pushed the dollar index, which tracks the greenback against its global peers, to the lowest level since February 1.
Ordinarily, a dovish Fed rate decision would boost asset prices around the world and lift stock benchmarks from Tokyo to Toronto, but with the overhang of slowing global growth, an uncertain outcome in U.S.-China trade talks and a still-unresolved Brexit drama in Europe, investor sentiment remained cautious overnight.
Trump's comments in Washington yesterday, in which he tariffs on China-made goods would remain "for a substantial period of time because we have to make sure that if we do the deal with China that China lives by the deal" added a defensive tenor to markets in Asia, which rose 0.45% but was impacted the close of Tokyo's Nikkei 225 for the annual Vernal Equinox holiday.
U.S. equity futures suggest added caution on Wall Street, as well, with contracts tied to the Dow Jones Industrial Average indicating a 73 point decline for the 30 stock benchmark and those linked to the S&P 500 guiding to a 3.4 point pullback for the broader benchmark.
Micron Technology (MU - Get Report) shares were indicated 3% higher in pre-market trading Thursday after the chipmaker posted stronger-than-expected second quarter earnings and echoed semiconductor sector rivals by forecast an uptick in global demand over the second half of the year.
Boeing Co. (BA - Get Report) shares were indicated lower in pre-market trading Thursday amid reports that lawmakers, federal investigators and the Department of Justice are lining up to question executives at the world's biggest planemaker over two horrific crashes of its 737 MAX planes that killed nearly 350 passengers and raised serious safety concerns for the flagship aircraft.
European stocks were mixed by mid-day trading, with a weaker pound supporting Britain's FTSE 100 to a 0.6% gain and trade concerns and a stronger euro pulling benchmarks on the Continent modestly into the red, with the Stoxx 600 marked 0.1% lower and Germany's DAX trading 0.21% to the downside.
Prime Minister Theresa May will travel to Brussels today to plead her case to EU leaders for a short Brexit deadline extension following two defeats for her Withdrawal Agreement in Parliament.
In a televised address last night outside Downing Street, May attacked U.K. lawmakers for failing to back her deal and hinted she may not stay on as Prime Minister if the Brexit process is extended beyond June 30.
Global oil prices were muted overnight, but traders continued to hold U.S. crude near $60 per barrel mark thanks in part to a weaker dollar and yesterday's surprise drawdown of 9.6 million barrels in domestic stockpiles from the Energy Information Administration.
Brent crude contracts for May delivery, the global benchmark for oil prices, were 28 cents lower from their Wednesday close and changing hands at $68.22 per barrel in early European dealing while WTI contracts for the same month, which are more tightly linked to U.S. gasoline prices, were seen 37 cents lower at $59.86 per barrel, which is still the highest level since November 12.
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