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Global stock markets drop on Fed remarks

Global stock markets

Benchmark U.S. Treasury yields advanced toward last week’s highs, and the dollar reached a three-month high

Wall Street slumped on Thursday and global stock markets dropped after U.S. Federal Reserve Chair Jerome Powell repeated his pledge to keep credit flowing until Americans are back to work, rebutting investors who have doubted he can stick to that promise once the pandemic passes.

Benchmark U.S. Treasury yields advanced toward last week’s highs as Powell spoke, and the dollar reached a three-month high.

Oil prices rose to their highest in more than a year as OPEC and its allies agreed to extend most oil output cuts into April, after deciding that the demand recovery from the pandemic remained fragile.

With COVID-19 vaccines rolling out and the government fiscal taps open “there is good reason to think we will make more progress soon” toward the Fed’s goals of maximum employment and 2% sustained inflation, Powell told a Wall Street Journal forum.

But “even if that happens it will take substantial time,” Powell added.

The Dow Jones Industrial Average shed 345.95 points, or 1.11%, to 30,924.14, the S&P 500 declined 51.25 points, or 1.34%, to 3,768.47 and the Nasdaq Composite fell 274.28 points, or 2.11%, to 12,723.47.

This market has already been weak and was looking for another excuse to sell, said Dennis Dick, head of markets structure and a proprietary trader at Bright Trading LLC in Las Vegas, citing fear in equities markets for the past nine months. Now, Powell gives them that excuse as well.

The pan-European STOXX 600 index shed 0.37% and MSCI’s gauge of stocks across the globe declined 1.62%, its third day of losses.

Emerging market stocks were down 2.61%. MSCI’s broadest index of Asia-Pacific shares outside Japan ended 2.63% lower, while Japan’s Nikkei fell 2.13% to its lowest since Feb. 5.

Worries about higher U.S. bond yields have also hit global shares.

Powell said the increase was “notable” but he did not consider it a “disorderly” move, or one that pushed long-term rates so high the Fed might have to intervene to bring them down.

Benchmark 10-year notes last dropped 21/32 in price to yield 1.5432%, from 1.47% late on Wednesday. They earlier hit their highest levels since a one-year high of 1.614% set last week on bets on a strong economic recovery.

The cost of borrowing U.S. Treasuries in the overnight repurchase agreement, or repo market, went negative on Thursday, analysts said, amid the bond market sell-off, which indicated stress in money markets.

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