The moves added to already heightened volatility in markets a day after the Federal Reserve cut interest rates for the first time in over a decade, in what was dubbed a “hawkish rate cut.”
After the Fed lowered its benchmark rate by 25 basis points on Wednesday, Chairman Jerome Powell said that the central bank’s first rate cut in over a decade was “not the beginning of a long series of rate cuts.”
Trump counteracts Powell
Trump said he was disappointed in Powell as he had called for a more dovish stance at the Fed, but his tariff announcement had the effect he wanted on the outlook for interest rates.
Traders are now pricing in two more interest rate cuts by year’s end, and are increasing bets the Fed will need to ease policy further next year to offset risks from the escalating trade war.
“One thing that’s interesting is that after the Fed decision yesterday Trump tweeted in fairly short order his disapproval of it, and so he went outside of the lines to start a trade war,” said Mazen Issa, senior foreign exchange strategist at TD Securities in New York.
Companies that rely heavily on doing business with China took the brunt of the market selloff. Apple quickly went from a gain of 1.4 per cent to a loss of 2.3 per cent. Electronics retailer Best Buy went from a slight gain to a drop of 9.3 per cent in heavy trading.
Banks, industrials and energy companies also fell. Utilities and real estate stocks rose as traders shifted money into more stable, high-yield stocks.
The afternoon sell-off puts the market on track to extend its losses for the week. The S&P 500 had its worst day in two months Wednesday after the Federal Reserve’s latest interest rate policy signals disappointed investors.
The S&P 500 index was down 0.9 per cent in mid-afternoon trading. The Dow dropped 251 points, or 0.9 per cent, to 26,612. The Nasdaq composite lost 1 per cent. The Russell 2000 index of small companies slid 1.6 per cent.
MSCI’s gauge of stocks across the globe shed 0.55 per cent.
Emerging market stocks lost 1.38 per cent. Futures in Japan’s Nikkei lost 1.59 per cent.
The trade war between the world’s two largest economies has been a lingering weight on oil prices, and the market sharply reversed its recent run-up in prices.
US crude fell 7.39 per cent to $US54.25 per barrel and Brent was last at $US60.90, down 6.38 per cent on the day.
US Treasury yields across all maturities fell sharply, with the benchmark 10-year note hitting its lowest since November 2016.
The 10-year note last rose 33/32 in price to yield 1.9072 per cent, from 2.021 per cent late on Wednesday.
Copper lost 1.05 per cent to $US5,865.00 a tonne.
Reuters, with AP