Published: Thu, October 11, 2018
Economy | By

Global stocks tumble after Trump 'crazy' Fed comment

Global stocks tumble after Trump 'crazy' Fed comment

US President Donald Trump said yesterday's stock market selloff was in fact a long awaited "correction", and that the Federal Reserve, which has been raising US interest rates, has gone "crazy".

The broad USA stock market sell-off Wednesday took the S&P 500 to the lowest in three months, the Dow Jones Industrial Average plunged as much as 836 points and the Nasdaq 100 Index tumbled more than 4 percent for its worst day in seven years. The Nasdaq dropped more than 4% in the worst percentage decline since June 2016.

Currency investors took shelter in the safe-haven yen, resulting in steep losses for Japanese exporters, with electronics giant Sony down almost five percent as blue-chip firms flashed red across the trading board. Japan's Nikkei, China's Shanghai Composite, and markets in Europe are all down sharply on Thursday.

Tokyo's Nikkei 225 index plunged 915 points (3.9%) to end at 22,591, while the Hang Seng index in Hong Kong had tumbled nearly 4% in late trade.

The FTSE 100 opened 1.5% lower - hovering just above the 7000 point level - following a 1.3% decline on Wednesday.

There are a slew of worries for investors which have been building in recent weeks.

Stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve rate hikes.

Higher interest rates tend to moderate economic growth and makes borrowing more expensive for the US government as well as businesses and consumers.

"The Fed is making a mistake", he told reporters on Wednesday as he arrived in Pennsylvania for a campaign rally.

"Actually, it's a correction that we've been waiting for, for a long time", Trump said regarding the stock market.

Stock market falls do not sing in tune with his pre-election narrative as he has used recent record stock market values as proof of economic achievements by his administration.

And while stocks could get a boost from strong corporate earnings, there are concerns the USA trade conflicts will start to undermine profits. Amazon and Microsoft lost 5% of their market value on Wednesday while Apple and Facebook shed 4%. As stocks go down, tech goes down more than the stock market, ' she said.

But one unintended effect is that raising interest rates can scare off investors and precipitate a sell off in equities.

The benchmark Nikkei 225 dropped almost two percent at the open and extended losses to below the three-percent mark, as traders fretted about surging interest rates and an ongoing trade spat.

"To say risk appetite has taken a hit would be an understatement!"

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