Indices have suffered heavy losses this morning, continuing their retreat from recent highs, as risk aversion build across markets.

  • Powell commits the Fed to long-term action
  • Indices continue to give back recent gains
  • FTSE 100 stocks broadly in the red

Stock markets remain deep in the red, and a cursory glance at market reaction to last night’s Fed would suggest that Powell was a major disappointment for investors. That is not really fair, however, since the Fed’s commitment to long-term support for the US economy is now stronger than ever. Quite apart from leaving rates in deep freeze for the next two years (at least), the clear message has been that the world’s most-powerful central bank is committed to repairing the damage to the US economy wrought by Covid-19, regardless of what markets do. Investors underestimate the Fed at their peril. But perhaps the lack of any fresh action meant that a short-term drop in stocks was all but guaranteed – the big question will be whether the 1000-point fall in the Dow this week will end up the previous ones since March, and simply provide investors with the chance to renew their commitment to this equity rally.

A weaker dollar has bolstered gold prices, which have enjoyed a rally as risk appetite for equities wanes, and with silver on the up for now too the FTSE 100’s few gainers are precious metal stocks. Aside from this, the index remains broadly in the red, although the moves have not been driven by any real news but more thanks to a resurgence in volatility that serves as a reminder that we are not back to the pre-February normal, whatever the price action in certain unstoppable US stocks might seem to suggest.

Ahead of the open, we expect the Dow to start at 26,332, down 657 points from Wednesday’s close.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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