NEW YORK – The Dow capped the worst week since October with more losses Friday as markets continued to digest the latest pivot in Federal Reserve messaging towards more restrictive monetary policy.
After European bourses fell nearly two percent, the Dow dropped more than 500 points, or 1.6 percent on weakness in energy and financial shares. That brought the blue-chip index’s losses for the week to 3.4 percent, the biggest drop in eight months.
“It is turning into a bit of a black Friday for risk assets in what looks like a mini taper tantrum,” said market analyst Fawad Razaqzada at ThinkMarkets.
The reference is to a 2013 panic on markets after the Fed indicated it would begin to slowly reduce stimulus measures for the economy.
Analysts said the losses were likely exacerbated by Friday’s expiration of key options and futures contracts.
The Fed on Wednesday maintained highly accommodative monetary policy, but the central bank moved up the timeframe for hiking interest rates and Fed Chair Jay Powell said the central bank has started discussions on when to taper the pace of bond buying, now at $120 billion a month.
Expectations of Fed tightening grew following comments on CNBC from St. Louis Federal Reserve President James Bullard predicting a first interest rate hike in late 2022 and saying it makes sense for the central bank to become “a little more hawkish” in light of recent inflation data.
Some analysts now expect the Fed to announce a plan to trim asset purchases at an August central bank conference in Jackson Hole, Wyoming.
“The market seemed to be somewhat reassured by the Fed simultaneously raising its inflation forecast for the year but also sticking with its message that a spike in prices is only transitory,” said TD Ameritrade’s JJ Kinahan.
“Despite everything going on in the market, there hasn’t been a general sense of disorder.”
In other markets, the dollar continued to gain against most other major currencies in the aftermath of the Fed announcement.
A stronger dollar frequently weighs on greenback-traded commodities, but oil prices rose Friday, with analysts pointing to an improving demand outlook as the economy recovers.
Key figures at 2050 GMT
New York – Dow: DOWN 1.6 percent at 33,290.08 (close)
New York – S&P 500: DOWN 1.3 percent at 4,166.45 (close)
New York – Nasdaq: DOWN 0.9 percent at 14,030.38 (close)
London – FTSE 100: DOWN 1.9 percent at 7,017.47 (close)
Frankfurt – DAX 30: DOWN 1.8 percent at 15,448.04 (close)
Paris – CAC 40: DOWN 1.5 percent at 6,569.16 (close)
EURO STOXX 50: DOWN 1.8 percent at 4,083.37 (close)
Tokyo – Nikkei 225: DOWN 0.2 percent at 28,964.08 (close)
Hong Kong – Hang Seng Index: UP 0.9 percent at 28,801.27 (close)
Shanghai – Composite: FLAT at 3,525.10 (close)
Euro/dollar: DOWN at $1.1861 from $1.1907 at 2100 GMT
Pound/dollar: DOWN at $1.3794 from $1.3922
Euro/pound: UP at 85.97 pence from 85.54 pence
Dollar/yen: DOWN at 110.20 yen from 110.21 yen
Brent North Sea crude: UP 0.6 percent at $73.51 per barrel
West Texas Intermediate: UP 0.9 percent at $71.64 per barrel
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