European stocks slumped and U.S. stock futures weakened on Thursday, with traders in Europe getting their first chance to react to the Federal Reserve’s decision and its cautious outlook on the world’s top economy.
The Stoxx Europe 600 lost 0.6%, and the major regional indexes, the German DAX, the French CAC 40 and U.K. FTSE 100, registered similar declines.
Futures on the Dow Jones Industrial Average dropped 250 points after a slight rise for the blue chips on Wednesday. Futures on the technology-heavy Nasdaq-100 also weakened.
The Federal Reserve on Wednesday, after European markets had closed, stated it was planning to hold interest rates at nearly zero until at least 2024, as it also said bond purchases would be done to help foster accommodative market conditions and not just market functioning. Chairman Jerome Powell gave a cautious outlook.
“All in all, the piecemeal changes to the Fed’s communications suggest the Committee is comfortable with current market conditions and with the likely path of recovery. Should conditions worsen, the Fed has left itself some room to strengthen the existing guidance,” said Bill Diviney, senior economist at Dutch bank ABN Amro.
“Markets need some more time to digest the news because the reality is that the Fed’s message wasn’t even close enough to be hawkish,” added Naeem Aslam, chief market analyst at AvaTrade. “However, if we have learned anything from previous [quantitative easing programs], the market participants become jittery when the Fed starts scaling back from its asset purchase program. On this front, we do not have any clear and defined timeline.”
The Bank of England also is deciding on interest rates, and isn’t expected to take dramatic action.
European automobile makers, including Renault and Volkswagen, fell after data showing new-car registrations slumped 18.9% in August and a 5.7% drop in July. German registrations fell 20% and French registrations dropped 19.8%, the European Automobile Manufacturers’ Association said.
U.K. clothing retailer Next rose 2%. On the heels of positive reports from Inditex and H&M, Next lifted its fiscal-year-ending-January profit forecast, now seeing a pretax profit of £300 million, up from its previous forecast of £195 million. Next said sales have held up much better than it expected, citing its online business, which already had presented more than half of revenue before the coronavirus lockdown, the strength of its home, childrenswear, loungewear and sportswear businesses, and its out-of-town stores.
Unibail-Rodamco-Westfield, the shopping mall operator, slumped 7% after announcing a €3.5 billion capital raise, as well as a plan to limit dividends and dispose of €4 billion of assets by the end of 2021.
Grenke, the German leasing company, rose 14% after a 40% drop on Wednesday. Grenke is going to hold a call with investors and analysts on Friday and said it strongly rejects the accusations of accounting fraud made by a short seller, Viceroy Research, and said there was a credit balance of €761 million in the German Bundesbank on Tuesday.