The US dollar has stirred and equities have recoiled after a divided US Federal Reserve dented stimulus hopes, TikTok’s tug-of-war clobbered tech stocks and dire European car sales underscored coronavirus troubles.
Traders on Thursday were also watching Bank of Japan and Bank of England meetings as well as plenty more too but the tone was set by the events overnight at the Fed and in the tech war.
The Fed extended its “dot plot” forecast of unchanged US interest rates out to end-2023 but going no further than that, and upgrading growth forecasts so that GDP is now seen reaching pre-pandemic levels next year rather than in 2022.
The downtrodden dollar rebounded across the board, given it its best daily rise in over a week against a basket of other top currencies and punting the euro back under $US1.18.
Bond markets seemed less enlivened with US Treasuries and German Bunds both quiet in early European trading though choppy equities markets were making up for it.
Tech stocks shed 1.6 per cent after US President Donald Trump’s had warned China’s ByteDance should not keep control of the US operations of social media platform TikTok, a move that had also seen Chinese heavyweight Alibaba drop more than four per cent overnight.
Banks, automakers and miners were the biggest sectoral fallers though, all dropping as much as two per cent. Volkswagen, Renault and PSA Group fell between 2.5% and three per cent after industry data showed European car sales fell by 17.6 per cent in August.
The stronger dollar inflicted some damage in emerging markets too. Turkey’s battered lira hit its latest record low , Argentina announced new capital controls and there was a third straight day of falls for eastern European currencies.
MSCI’s broadest index of Asia-Pacific shares outside Japan had lost 1 per cent overnight after five straight days of gains while Japan’s Nikkei shed 0.6 per cent.
The Fed said it would keep interest rates near zero until inflation is on track to “moderately exceed” the central bank’s two per cent inflation target “for some time.”
New economic projections released with the policy statement showed most policymakers see interest rates on hold through to at least 2023, with inflation not breaching two per cent over that period.
“Nevertheless, markets are priced for basically one outcome here and that is little inflation and no hikes for years to come.”
The Australian dollar lost 0.4 per cent to $US0.7278, having erased earlier gains made after stronger-than-expected local jobs data.
The Chinese yuan also dropped about 0.35 per cent to 6.7686 per dollar, stepping back from a 16-month high hit on Wednesday.
The yen was little moved at 104.98 to the dollar having hit a 1-1/2-month high of 104.80 per dollar overnight.
With focus on new Prime Minister Yoshihide Suga, who is seen by some as a strong opponent of a higher yen, some traders said the market may be tempted to test his resolve on the currency.
The Bank of Japan maintained its policy as widely expected.
As the dollar gained, oil prices gave up some of their big gains made on Wednesday on a drawdown in US crude and petrol inventories, with Hurricane Sally forcing a swath of US offshore production to shut.
Brent crude dropped one per cent to $US41.80 per barrel while US crude fell 1.2 per cent to $US39.68 per barrel. Gold also slipped 0.8 per cent to $US1,943.8 per ounce.