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Share prices in see-saw back to losses | |
(about 2 hours later) | |
US and European share markets have returned to losses, but at a shallower rate than those seen on Thursday. | |
Shares in the UK, France and Germany slumped in late trading after Wall Street reopened, with the FTSE 100 ending Friday down 0.7%, the Paris Cac 40 1.1% and Germany's Dax 1.8%. | |
Oil prices also fell, with Brent crude down 1.8% to just over $100 a barrel. | |
The sharpest falls came after US Fed said it could scale back its stimulus programme. | |
That sent the Dow Jones to close down 2.3% on Thursday, its biggest fall of the year. | |
China worries | China worries |
The Fed has been trying to support the weak US economy by buying bonds at a rate of $85bn (£54bn) a month, under a policy known as quantitative easing (QE). | The Fed has been trying to support the weak US economy by buying bonds at a rate of $85bn (£54bn) a month, under a policy known as quantitative easing (QE). |
However, late on Wednesday, Fed chairman Ben Bernanke said that if the US economy continued to show signs of improvement then the central bank could start to slow down its bond purchases as early as this year, and end the programme next year. | |
The bond-buying programme has been seen as a key factor behind the rise in stock markets in recent months, as the cash proceeds from the bond purchases flood through the economy and keep long-term interest rates low. | The bond-buying programme has been seen as a key factor behind the rise in stock markets in recent months, as the cash proceeds from the bond purchases flood through the economy and keep long-term interest rates low. |
Another factor that spooked markets was news of record high borrowing costs in China this week, raising fears of a Chinese credit crunch and a stalling of the world's growth engine. | Another factor that spooked markets was news of record high borrowing costs in China this week, raising fears of a Chinese credit crunch and a stalling of the world's growth engine. |
Markets remained under pressure on Friday, but some analysts said the falls seen the previous day had been an overreaction, with markets rebounding somewhat during morning trading in Europe. | |
Neil Marsh, strategist at Newedge, said: "We've had a bit of a correction, and even now I think the correction looks overdone, so I am still fairly bullish." | Neil Marsh, strategist at Newedge, said: "We've had a bit of a correction, and even now I think the correction looks overdone, so I am still fairly bullish." |
However, the negative sentiment returned in the closing hours. | |
Returns | |
Behind the bearish tone was a rise in long-term interest rates, as markets continue to price in expectations that the Fed will start raising short-term US interest rates sooner than previously thought. | |
The 10-year yield on US Treasuries - the benchmark for the Federal government's long-term cost of borrowing - rose from 2.41% to 2.48%. In early May it stood at less than 1.7%. | |
The prospect of higher returns in the US dragged the dollar higher against most other currencies, up 0.8% against the euro, 0.7% against sterling and 0.3% against the yen. | |
It also drove long-term borrowing costs marginally higher in other countries, including the UK and eurozone. | |
Commodities prices had a more mixed day, as the negative sentiment from the US was tempered by relief that the apparent stress in the banking system in China - the dominant buyer of many of the world's raw materials - had eased somewhat on Friday. | |