Stock markets under pressure amid threat of US government shutdown

Global stock markets came under renewed pressure on Thursday, with Wall Street dropping further as the threat of a US government shutdown this weekend compounded concern over the global economy and the risk that the Federal Reserve will go too far in raising interest rates.

US president Donald Trump told lawmakers he would reject a bill to fund the government into next February, setting up a showdown over his ambition of winning $5 billion (€4.4 billion) to fund a wall on the border with Mexico.

That led to a new leg down for equity markets still digesting the Fed’s monetary policy update on Wednesday, which had disappointed investors hoping for a more dovish tone in response to global growth worries and market turmoil.

The US benchmark S&P 500 was down more than 2.6 per cent at its worst, extending Wednesday’s heavy selling. The tech-heavy Nasdaq Composite index dipped into bear market territory — a fall of more than 20 per cent from its August high — before a slight rebound, but it was still languishing more than 1.5 per cent lower in mid-afternoon trading.

Fed rate rise and outlook unsettles markets

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US stocks fall sharply on Fed rate rise

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Crude oil prices also retreated, with Brent crude down more than 5 per cent to $54.30 a barrel, the latest in a string of sell-offs that has left the international benchmark down 9 per cent for the week to date.

In Dublin, the Iseq tracked European peers by dropping 1.2 per cent, marking its lowest level since immediately after the UK’s Brexit referendum in June, 2016. The pan-European Stoxx 600 index dropped 1.5 per cent, after earlier hitting its lowest level since November 2016. Germany’s Dax shed 1.4 per cent, France’s CAC 40 fell 1.8 per cent, while in London, the FTSE 100 edged lower by a more modest 0.8 per cent.

Rate increases

The Fed on Wednesday reduced its forecast for 2019 rate increases, from three quarter point rises to two, given rising risks across the global economy, from Europe to Asia and the US. In a press conference, Jay Powell, Federal Reserve chairman, particularly unnerved markets by saying that he did not see the central bank changing its "autopilot" policy of reducing the size of the Fed's balance sheet.

"As widely expected, the Fed revised down its outlook for future rate increases and made other dovish changes to its message," said Zach Pandl, Goldman Sachs economist. "But it was not dovish enough to support markets increasingly driven by concerns over slowing economic growth." – Copyright The Financial Times Limited 2018