Much like the British weather, a sunny start to June has given way to gloomy skies for the markets, the last few days crushing the optimism that had driven indices higher and higher.
Coming hot on the heels of the OECD’s own projections, the Federal Reserve revealed its economic forecasts on Wednesday night – and they didn’t make for comfortable reading.
Though the central bank’s estimates of a 6.5% contraction in the US this year are better than the OECD’s -7.3% expectations, that failed to reassure investors even one bit.
Instead the focus was on the ‘long road’ to recovery the Fed highlighted, including keeping interest rates near zero until the end of 2022. Jerome Powell was especially insistent on this point, stating that the FOMC was not even ‘thinking about thinking about raising rates’.
For the past few weeks investors have sort of forgotten that we are in the midst of a pandemic, overegging their optimism thanks to a lockdown-easing measure here, and a better than forecast nonfarm jobs report there.
Well, the OECD and Fed appear to have shaken the markets out of their short-sightedness, forcibly reminding investors that it is going to be a long, tough journey back to growth.
Message received. The FTSE sank 2.5% as trading got underway in Europe, taking it back under 6170. The DAX, meanwhile, plunged close to 3%, sinking the wrong side of 12200, with the CAC down the same amount as it desperately tried to keep above 4900.
The Dow Jones is set to follow in Europe’s footsteps this afternoon, the futures currently pencilling in a near-600 point cliff-dive when trading gets underway stateside. That would push the Dow back to 26400, almost 1200 points off of Monday’s 15-week highs.
"Disclaimer: Spreadex provides an execution only service and the comments above do not constitute (or should not be construed as constituting) investment advice or recommendations, or a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any person placing trades based on their interpretations of the above comments does so entirely at their own risk. Spreadex Ltd is a financial and sports spread betting and sports fixed odds betting firm, which specialises in the personal service and credit area. Founded in 1999, Spreadex is recognised as one of the longest established spread betting firms in the industry with a strong reputation for its high level of customer service and account management.
In relation to spread betting, Spreadex Ltd is authorised and regulated by the Financial Conduct Authority. Spread betting carries a high level of risk to your capital and can result in losses larger than your initial stake/deposit. It may not be suitable for everyone, so please ensure you fully understand the risks involved."