BANGKOK – Global stock markets fell Friday, two days after the Fed announced it would keep its unprecedented stimulus in place. Public holidays kept trading muted in Asia.
The Nikkei 225 index in Tokyo gave up early gains to close 0.2 per cent lower at 14,742.42. Markets elsewhere also ran out of gas following big rallies that were sparked by the U.S. Federal Reserve’s surprise decision Wednesday to refrain from reducing its $85 billion in monthly asset purchases.
European stocks fell in early trading and Wall Street appeared headed for a lower open too.
Britain’s FTSE 100 fell slightly to 6,621.32. Germany’s DAX shed 0.1 per cent to 8,686.42. France’s CAC-40 lost nearly 0.2 per cent to 4,199.87. Dow Jones industrial futures slipped marginally to 15,567. S&P 500 futures were down 0.1 per cent to 1,716.50.
Many traders had expected the Fed to start scaling back its asset purchase program, instituted in the aftermath of the 2008 financial crisis to help keep afloat a recession-mired U.S. economy. The program was used to increase the flow of money available for loans to spur growth, and also push down interest rates.
The low interest rate environment proved a boon for stock markets, where investors fled with their money in search of higher returns.
That is a key reason why stock markets rejoiced when the Fed left its “quantitative easing” program untouched earlier this week — even though the Fed is maintaining the program because the U.S. economic recovery is weak.
Trading throughout Asia was muted Friday, largely due to public holidays. Markets in Hong Kong, mainland China, Taiwan, South Korea and Malaysia were closed.
Australia’s S&P/ASX 200 fell 0.4 per cent to 5,276.70. Benchmarks in Indonesia, New Zealand, Thailand, the Philippines and Singapore fell. India’s benchmark Sensex dropped 2.2 per cent to 20,203.96 after the country’s central bank unexpectedly raised interest rates in a bid to lower inflation.
Now that the Fed has spoken, investors will likely begin turning their focus to Washington and the political fighting between the White House and Congress over the approaching debt ceiling. It must be raised by Oct. 1 to avoid a government shutdown. Failure to do so could lead to the first-ever national default in U.S. history.
Market volatility will increase as the deadline approaches, said Evan Lucas of IG in Melbourne, Australia.
“This is the next key thing,” Lucas said. “A lot of people are looking for a reason to sell.”
Benchmark oil for October delivery was up 16 cents to $106.06 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.68 to close at $106.39 a barrel on the Nymex on Thursday.
In currencies, the euro fell to $1.3518 from $1.3534 late Thursday. The dollar was unchanged at 99.37 yen.
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