Stocks tumble on deepening fears of a fed mistake

[SYDNEY] Stocks tumbled in Europe and Asia on Thursday while US equity futures fell as investors expressed concern about a lack of relief from the Federal Reserve's monetary tightening. The dollar weakened and the yen jumped.

The sell-off that began Wednesday afternoon with Fed Chairman Jerome Powell's downplaying of the implications of market volatility, and his commitment to continue reversing quantitative easing, gathered pace hours later in Asia and Europe. More than two thirds of Stoxx Europe 600 members were down, with Japanese shares sliding into a bear market. Treasuries edged lower after an overnight jump. Oil slumped below US$48 in New York. The yen climbed to its strongest since mid-October.

"They think the Fed has completely misjudged the situation and now it's just a matter of just trying to find an exit while you can," Kyle Rodda, a market analyst at IG Group in Melbourne, said of global investors. "We're probably entering a stage now where markets have got it their head that we're preparing for quite sustained downside going into 2019."

While Mr Powell and his colleagues did signal a less aggressive path for rate hikes in 2019, the quarter-point move on Wednesday and suggestion that recent market turmoil doesn't unduly worry the US central bank proved to have the bigger impact. Global stocks are set for their worst quarter since 2011, yet Mr Powell in his press conference said that "we don't look at any one market," and that in the abstract "a little bit of volatility" probably doesn't leave a mark on the economy.

"The Fed's been a huge friend of the stock market and they are now a little bit of an enemy and probably become worse of an enemy before this is all over," Bob Doll, Nuveen chief equity strategist and senior portfolio manager said on Bloomberg Television.

In Japan, 10-year bond yields headed closer to zero percent following the rally in Treasuries on Wednesday. Bank of Japan Governor Haruhiko Kuroda said in a press conference Thursday that there was no problem if yields fell into negative territory, suggesting he has no plan to intensify the central bank's tapering of asset purchases.

The Stoxx Europe 600 Index decreased 1.4 per cent as of 8.15 am London time, to the lowest in more than two years on the largest dip in more than a week.

Futures on the S&P 500 Index decreased 0.6 per cent, its sixth consecutive decline.

The MSCI All-Country World Index dipped 0.6 per cent, hitting the lowest in 20 months with its fifth consecutive decline.

The MSCI Emerging Market Index declined 0.9 per cent to the lowest in seven weeks.

BLOOMBERG