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U.S. Federal Reserve Chairman Jerome Powell said more fiscal stimulus from Congress was expected.
Eric Baradat/Agence France-Presse/Getty Images
It looks set to be a tough day for markets.
Investors were left disappointed by the Federal Reserve’s action — or lack of — late on Wednesday, as the central bank failed to indicate any new stimulus. The Fed said it planned to hold interest rates at nearly zero until the end of 2023 at the earliest, as Chairman Jerome Powell gave a cautious outlook.
In our call of the day, Lena Komileva, chief economist at G-Plus Economics, said markets have now seen the “peak of Fed stimulus,” barring a government error or market shock.
“The Fed’s new inflation framework has not led to a new policy regime, or fresh action, but to a flatter policy cycle that still provides greater reflationary stimulus against the economy’s adjustment to a new with-COVID normal,” she said.
“This reinforces our view that, barring a new exogenous shock to the economy, or a fiscal policy error failing to bring fresh support to the recovery beyond the November elections, markets have seen the peak of Fed stimulus,” Komileva added.
With no signs of further measures from the Fed, AxiCorp market analyst Milan Cutkovic said the spotlight would now be on Congress over a new stimulus package, with further delays potentially impacting markets.
“The focus will now shift back to the U.S. Congress, where Democrats and Republicans are still struggling to agree on a stimulus package. Investors are becoming increasingly impatient with the lack of progress, and market sentiment could turn sour if there is no deal soon,” he said.
Goldman Sachs GS, +1.35% economist David Mericle noted that while Powell said more fiscal stimulus from Congress was expected, there were risks in both directions. Mericle added that a Democratic sweep in the election would likely mean “substantial further stimulus,” while a failure in negotiations over a new stimulus bill this month and a divided government after the election would “raise the risk of a slower recovery.”
The markets
After a slight rise on Wednesday, the Dow Jones Industrial Average DJIA, +0.13% was set to fall as Dow futures YM00, -0.83% pointed 0.9%, or 254 points, lower before the open. Nasdaq futures NQ00, -1.96% slipped 1% and S&P 500 futures ES00, -1.23% were 1.1% lower, as traders reacted to the Fed’s cautious global economic outlook.
European stocks also fell in early trading, with the pan-European Stoxx 600 SXXP, -0.75% 0.6% down, the German DAX DAX, -0.70% 0.6% lower, and the FTSE 100 UKX, -0.44% falling 0.8%. Rising coronavirus cases in countries across the continent also contributed to the negative sentiment.
The buzz
Shares of Snowflake SNOW, +111.60% surged 111.6% in Wednesday’s session, after the company produced the largest software initial public offering on record, leaving the company with a market value of roughly $70 billion.
The Bank of England is expected to hold interest rates, amid conflicting signals over the U.K.’s economic recovery.
Database software company Oracle’s ORCL, -0.83% bid for Chinese-owned video-sharing app TikTok has prompted concerns within the Trump administration that it still poses national security risks, according to a Bloomberg report late on Wednesday.
Anglo-French biotech group Novacyt ALNOV, +5.39% swung to a profit in the first half, as sales of COVID-19 tests triggered a surge in revenue.
European car sales fell 18% in August after three months of improvement post-lockdown, raising concerns over the recovery. Automobile makers Renault RNO, -1.35% and Volkswagen VOW, -1.46% were among the sector’s sharpest fallers on Thursday.
President Donald Trump said a COVID-19 vaccine could be rolled out from mid-October, disputing earlier comments from Centers for Disease Control and Prevention Director Dr. Robert Redfield, who said that a vaccine may not be available to the general public until well into next year.
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