Global Markets Slip as Fed-Driven Euphoria Fades
LONDON - Global stock markets were muted Monday as the boost faded from the Federal Reserve’s announcement last week of new measures to energize the U.S. economy.
Signs that European governments will take longer than expected to agree the details and set up their banking supervisor also weighed on sentiment.
By midafternoon in Europe, Germany’s DAX was down 0.1 percent to 7,405.23 while France’s CAC 40 dropped 0.5 percent to 3,564.69. Britain’s FTSE 100 index lost 0.3 percent to 5,899.54.
Wall Street also traded lower after the open - the Dow shed 0.2 percent to 13,566.73 and the broader S&P 500 fell 0.3 percent to 1,461.81. Asian indexes closed lower.
Global stock markets rallied late last week after the Fed announced it planned to buy $40 billion of mortgage bonds a month for as long as necessary as part of a strategy known as quantitative easing aimed at encouraging people to borrow money and spend it. The Fed also extended its pledge to keep short-term interest rates low until 2015, a year longer than its previous target.
While investors were still in the mood to take on more risk, "the risk of profit taking has grown given the pace and magnitude of recent moves," strategists at Credit Agricole CIB said in a research note.
Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities, said this week was a key one for stock markets because investors have now seen most of the possible stimulus measures available to policymakers in major economies - with the possible exception of China.
"If markets don’t rally and volumes don’t increase this week then they are unlikely to during the rest of the year," Sullivan said. He said he had doubts that investors would return to the markets.
Uncertainties include the state of the U.S. economic recovery and Europe’s simmering debt crisis.
A meeting of the 17 eurozone finance ministers over the weekend showed it will take months of negotiations and preparation to set up a new European banking union. Eurozone countries are, among other things, divided over how many banks should be supervised by a new authority with the ability to bail out the lenders directly.
Creating a European banking union is important to ease concerns that bank failures might bring down the government finances of financially weak states such as Spain or Italy.
German Chancellor Angela Merkel on Monday insisted that a banking supervisor would take time to plan and set up properly and would not be in place by Jan. 1, as the European Commission had hoped. She also said she sees no need for joint European deposit insurance, another key measure to stabilize Europe’s financial system.
Earlier, in Asian trading, Hong Kong’s Hang Seng rose 0.1 percent to close at 20,658.11 and South Korea’s Kospi slipped 0.3 percent to end at 2,002.35.
Australia’s S&P/ASX 200 edged 0.3 percent higher to 4,402.50. Benchmarks in Singapore, Taiwan, New Zealand, Thailand, the Philippines and Indonesia rose. Markets in Japan were closed for a holiday.
Indian stocks rose after the country’s central bank cut the cash reserve ratio and the government opened its huge market to foreign retailers in a bid to kick-start flagging economic growth.
Mainland China’s Shanghai Composite Index tumbled 2.1 percent to 2,078.50 while the smaller Shenzhen Composite Index plunged 2.9 percent to 864.19.
Sullivan, the sales trader, speculated that Chinese authorities could unveil economic stimulus measures ahead of a Communist Party congress expected this autumn. The date for that meeting has still not been set.
In commodities markets, the crude contract for October delivery was up 26 cents to $99.26 a barrel in electronic trading on the New York Mercantile Exchange. The contract finished up 69 cents to $99 per barrel in New York on Friday.
In currencies, the euro rose to $1.3154 from $1.3117 late Friday. The dollar rose to 78.81 Japanese yen from 77.30 yen.