Stocks slipped yesterday as a senior US central banker flagged an early rate rise, a day after the European Central Bank failed to deliver new stimulus, disappointing markets.
In London, the FTSE 100 down 1.2% at 6,776.95 points; Frankfurt — DAX 30 down 1.0% at 10,573.44 points and
Paris — CAC 40 down 1.1% at 4,491.40 points at the close yesterday.
A falling oil price added to downward pressure while in Asia markets were also marred by concerns over North Korea’s nuclear test.
Wall Street fell after Eric Rosengren, president of the Boston Fed and a voting member of the Fed’s policy committee this year, suggested tighter credit may well be needed to avoid an overheating of the economy.
“If we want to ensure that we remain at full employment, gradual tightening is likely to be appropriate,” he said, rekindling talk that a Fed hike, which many investors expect for December, could now come as early as the central bank’s next meeting on September 20-21.
The hint of a more aggressive Fed stance added to gloom across the Atlantic where European investors were still digesting an apparent lack of urgency on the part of the ECB to do more for flagging eurozone economies.
The ECB on Thursday held back from adding firepower to its quantitative easing programme by which it pumps cheap money into the financial system.
Frankfurt and Paris extended early losses after the Fed official’s comments and Wall Street’s reaction, to both close around 1% lower.
“Markets continue to digest disappointment that ECB President Draghi did not offer more,” said Mike van Dulken, head of research at Accendo Markets.
“Leaving quantitative easing unchanged...proved controversial, and has divided opinions in the market,” added Davide Ugolini at trading firm CurrenciesDirect.
Eurozone investors said they were also concerned about a drop both in German exports and imports, a sign of the powerhouse economy slipping.
“Germany is continuing a very weak data series in the eurozone, and we’re starting to get worried,” analysts at Mirabaud Securities Geneve said.
Deutsche Bank shares, however, jumped after a report said a deal with the US over the bank’s mishandling of subprime mortgage sales is looming.
London equities also dropped, failing to get support from official data showing that Britain’s trade gap narrowed in July, as exporters were boosted by a post-Brexit slump in the pound.
In Asia, South Korean stocks and the won led most Asian markets lower yesterday after the North conducted another nuclear test, while trading was also hit by worries over global central bank policy.
Pyongyang said it had conducted a “successful” fifth nuclear test, which South Korea said was its largest-ever.
The news intensified worries about geopolitical tensions in the region as world powers, including China struggle to rein in Pyongyang’s erratic behaviour.
Seoul’s KOSPI index fell almost 1.3% while a Bank of Korea decision not to cut interest rates was unable to prevent the won sinking almost 1% early on, before it edged back slightly.
The losses led a sell-off around most of the region with Sydney and Singapore each down 0.9%, while there were also sharp falls in Taipei, Jakarta and Manila.