US stocks tumble to eight-week low
Stocks slumped to an eight-week low amid warnings from Federal Reserve officials on the need for more stimulus to lift the world’s largest economy from a coronavirus-induced recession. The dollar rallied.
The S&P 500 Index tumbled 2.37% to close at 3,236.92 on Wednesday (23 September), near the threshold that many investors consider to be a market correction, while the Nasdaq Composite Index erased 3.02% to 10,632.99, led by giants Apple Inc (AAPL US) and Amazon.com Inc (AMZN US). The Dow Jones Industrial Average lost 1.92% to 26,763.13.
Fed Chairman Jerome Powell reiterated there is a long way to go for the economic rebound, which will likely require more support. The need for further aid was also stressed by Vice Chairman Richard Clarida, Governor Randal Quarles, and regional chiefs Charles Evans, Loretta Mester, and Eric Rosengren.
The warnings come days after Congress all but ended its pursuit of a bipartisan spending bill to focus on replacing Ruth Bader Ginsburg on the Supreme Court. It is another blow to investors who are also watching virus cases tick higher in the US amid a resurgence in infections around the world. Traders are growing cautious about the strength of the economic recovery, with the chances for Congressional stimulus withering ahead of a contentious election battle. The benchmark gauge of US equities is poised for its first monthly slide since March.
“Markets are digesting and grappling with this idea that the growth expectations that investors have might not materialise,” said a strategist. “As the fiscal impulse in the US starts to wane, some of these expectations for a slow and steady recovery are shaken.” – Bloomberg News.
The Euro Area’s economic recovery stalled this month as consumers fretted about a resurgence of the coronavirus and governments reinstated restrictions to control the spread of the disease.
IHS Markit’s composite Purchasing Managers’ Index (PMI) unexpectedly fell to 50.1 from 51.9 in August, far worse than economists had forecast. The weakness is a reminder that while the initial rebound from lockdowns proved stronger than anticipated, that is little guide to the longer term. Activity is still below its pre-crisis levels, full recovery is a long way off, and a number of sectors remain in trouble.
The report linked the decline in activity to a resurgence in infections across Europe in recent weeks that has hit hotels, airlines, and restaurants.
The tourism sector is reeling, and Airbus SE (AIR FP) Chief Executive Officer Guillaume Faury said Tuesday (22 September) the “situation has worsened”. He stepped up his warning on forced job cuts at the plane maker amid a sharper-than-expected decline in travel. The same day, UK hotel operator Whitbread Plc (WTB LN) announced plans to cut as many as 6,000 jobs.
The skewed impact of the virus means Europe is seeing a two-speed recovery, with manufacturing growing but services back in contraction. Markit’s reports on Germany and France showed a similar picture.
The services numbers could get even worse as restrictions are reimposed and events are cancelled. The UK this week (ending 25 September) announced a 10 pm curfew on bars and restaurants, and reversed a recommendation for workers to return to offices.
The Organisation for Economic Co-operation and Development warned last week that the recovery is losing pace and will need support from governments and central banks for some time. On Monday, European Central Bank President Christine Lagarde said the outlook is still “very uncertain”.
A bright note in the PMI release was a pickup in business expectations. That was driven mainly by hopes that disruptions from the virus will ease over the coming year. – Bloomberg News.
The Stoxx Europe 600 Index rose 0.55% to 359.53 on Wednesday (23 September).
Japan’s ruling Liberal Democratic Party (LDP) is looking to submit a proposal to the cabinet next week (ending 2 October) that would help lure firms and financial professionals looking to relocate from Hong Kong due to its political uncertainty.
Details of the plan released Wednesday (23 September) from a party special committee said that in order to make the country more attractive, Japan needs to ease tax burdens, including inheritance taxes, that can be higher than those in financial hubs such as Hong Kong and Singapore. The plan also includes easing restrictions on personnel moves and improving services offered in English.
If the LDP-dominated cabinet approves, Japan’s government could try to have the plan put into place. But the proposal is likely to face pushback over its calls for tax revisions, which may hinder its implementation.
Tokyo has tried for years to increase its status as a global financial hub but has faced problems including bureaucracy seen as excessive and a language barrier. On top of this, Japan currently bars almost all foreigners from more than 100 countries and regions from entering in a bid to contain the spread of the coronavirus.
The LDP began debating details in July about making the Japanese capital more attractive to international firms, shortly after China’s government asserted broad new powers over Hong Kong with a national security law that is endangering the city’s reputation as a global business hub. – Bloomberg News.
The Nikkei 225 Index fell 0.55% to 23,218.74 at the open on Thursday, adding to the previous session’s 0.06% loss to 23,346.49.
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