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European stocks fell from a record low on Friday as investors turned cautious ahead of the US Federal Reserve’s latest monetary policy decision on Wednesday.
The Stoxx Europe 600 index fell 0.4% at the start of trading, following declines in Asia sparked by a crackdown on education companies in China and nervousness from the US central bank closing in on containment of its asset purchases during a pandemic. London’s FTSE 100 fell 0.5%.
The Fed has bought $ 120 billion in bonds every month since last March in a bid to support the economic recovery from the depths of the pandemic, lowering yields on government debt and other credit instruments and bolstering the attractiveness of actions.
Economists generally don’t expect specific indications on when the bond buying program will be cut from Fed Chairman Jay Powell after this week’s meeting. But a split has opened among Fed officials on when to step down after US consumer price inflation accelerated to 5.4% in the 12 months leading up to June. .
“The minutes for the month of June [Federal Reserve] The meeting and the rhetoric from Fed officials suggest there is a division among members over the timing, pace and composition of the cut, ”ANZ economist Tom Kenny said.
St Louis Fed Chairman James Bullard told the Wall Street Journal earlier this month that “the time has come” to withdraw the monetary stimulus. Dallas Fed Robert Kaplan has also been a strong advocate for cut stimulus.
However, government bond prices rose on Monday, in response to steep falls in Asian stock markets. China’s CSI 300 stock index fell 3.2% after the Beijing government this weekend banned college groups from making a profit, raising capital or going public.
The crackdown follows a wave of antitrust and other measures against Chinese tech companies, including ridesharing app Didi Chuxing and e-commerce group Alibaba. Hong Kong’s Hang Seng Index fell 3.7% and South Korea’s Kospi 200 fell 1%.
The yield on the benchmark 10-year US Treasury bond, which moves against its price, fell 0.05 percentage points to 1.238 percent. The equivalent yield on the German Bund fell 0.02 percentage point to minus 0.435 percent.
Analysts were surprised by the rapid fall in the Treasury benchmark yield of nearly 1.8% in March, despite rising inflation rates, and last month Fed officials advanced their forecast for the first post-pandemic rate hike through 2023.
Some have accused traders of buying Treasuries after they liquidated overly aggressive short positions that were badly taken by the Fed’s Powell, insisting that high inflation was a temporary effect of the economy reopening after closures from last year.
Others say the treasury market remains focused on threats to economic growth from the highly transmissible Delta variant of the coronavirus.
“The Treasury market signaled a total growth slump,” Jefferies strategists wrote in a research note, even though there was “a complete lack of evidence of a growth collapse.”
In foreign currencies, the euro held steady against the dollar to buy $ 1.1776 after hitting its lowest level since early April last week as the European Central Bank signaled it would hold interest rates deeply negative. The British pound added 0.1% to $ 1.3762. The dollar index, which tracks the greenback’s progress against major currencies, fell 0.1%.
Brent crude, the international benchmark for oil, fell 1.8% to $ 72.76 per barrel.
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