Friday 17 November 2017

US Fed warning sends European shares into a downward spiral

US Federal Reserve Chairman Ben Bernanke. Photo: Getty Images
US Federal Reserve Chairman Ben Bernanke. Photo: Getty Images

EUROPEAN shares nosedived this morning after the US Federal Reserve warned of risks to the struggling domestic economy - and contraction in China's manufacturing sector.

At 8.06am, the FTSEurofirst 300 index of top European shares was down 2.5 per cent at 895.32 points after sliding 1.7 per cent in the previous session. The index is down 20 percent this year on euro zone debt concerns and worries about global economic growth.

Mining shares came under severe pressure, with key base metals prices falling 1.4 to 3.4pc on worries about demand for industrial metals.

The European mining sector index fell 4.8pc.

Oil prices fell over $2 a barrel on concerns measures would be insufficient to boost growth, with Brent crude futures trading down at $108.30 a barrel.

A stronger dollar added to downward pressure, with the US currency trading 0.75 per cent higher against a basket of currencies heavily weighted by the euro early today.

The widely predicted Fed move, known as "Operation Twist", aims to stimulate the economy by forcing down long-term borrowing costs.

But it was the central bank's bleak assessment of the world's biggest economy that preoccupied markets, with some investors also disappointed that there were no bolder stimulus moves, given the extent of the Fed's pessimism.

"The dollar's strength and the risk aversion that we have seen in recent weeks have picked up steam after the Fed, as investors came to terms with the fact they can't pin their hopes on the bank to help the economy," said Tohru Sasaki, of JPMorgan Chase.

Japan's Nikkei fell 2.1pc and MSCI's broadest index of Asia Pacific shares outside Japan slumped 4.3 per cent, near the intraday low.

Earlier it touched a 14-month trough.

Press Association

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