European stocks slumped and U.S. stock futures weakened 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.
Futures on the Dow Jones Industrial Average YM00, -1.12% dropped 359 points after a slight rise for the blue chips DJIA, +0.13% on Wednesday. Futures on the tech-heavy Nasdaq 100 NQ00, -1.55% 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 Ava Trade. “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 automakers including Renault RNO, -1.20% and Volkswagen VOW3, -1.37% 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 NXT, +1.07% rose 2%. On the heels of positive reports from Inditex ITX, -1.08% and H&M HM.B, -1.27%, 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 lockdown, the strength of its home, childrenswear, loungewear and sportswear businesses, and its out-of-town stores.
Unibail-Rodamco-Westfield URW, -8.87%, the shopping mall operator, slumped 6% after announcing a 3.5 billion euro capital raise, as well as a plan to limit dividends and dispose of 4 billion euros of assets by the end of 2021.
Grenke GLJ, +15.20%, the German leasing company, rose 6% after a 40% drop on Wednesday. Grenke 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 euros in the German Bundesbank on Tuesday.