Cautious Fed Tone Drags Global Stocks While Yellow Metal Rises

Cautious Fed Tone Drags Global Stocks While Yellow Metal Rises

The global stock markets reacted sharply to the overnight Federal Reserve’s cautious note on the global economy’s health. The hopes of another interest rate hike receded following the comments of Janet Yellen, Chairwoman of the Fed, who pointed out the risks of growth, as well as, inflation. Her dovish tone, a fresh drop in global oil prices, and the lack of favorable corporate news forced the shares around the world to trade sharply lower. In the process, investors started preferring the precious yellow metal.

Lowest Level since October 2014

The S&P 500 futures were down 1.8% but recovered slightly when the market opened and then dropped in mid-day trading. However, the Asian and European markets have either closed in the negative territory or were trading in the red. For instance, Stoxx Europe 600 dropped about 3.9% to reach its lowest level since October 2014 dragged down by mining and banking stocks.

In Asia, China’s Shanghai, Nikkei 225, Hong Kong’s Hang Seng Index, and India’s BSE witnessed a drop of 0.63%, 2.31%, 3.85%, and 3.4% respectively at the close of Thursday. Similarly, the United Kingdom’s FTSE 100 and Euro STOXX 50 recorded a loss of 2.33% and 2.96% respectively. Banking stocks suffered close to a 6% loss in Europe reversing the trend of some relief in the earlier session. For the current year, the total losses surged to 28%. The banking sector was badly affected due to ambiguity in the central bank policy, oil price, China’s currency, and global growth.

Gold In Demand

As the commodities and stock prices were witnessing a continuous downtick, investors preferred some safe heavens like Gold. In London, spot gold advanced 1.1% to $1218 a troy ounce, which was the highest level after May. Similarly, the currency also witnessed some hectic activities as the Euro strengthened 0.4% against the Greenback.

In the commodities section, while WTI crude futures dropped 2.7% to $26.70, Brent crude oil slipped 1.3% to $30.43 a barrel. The yield on the government bonds was witnessing a drop. While the ten-year Treasuries of the United States fell to 1.619%, German Government bonds of ten-year tenure recorded 0.08 of a percentage point in yield to 0.169%.