Global stocks fell Thursday and the dollar continued to weaken as investors digested the Federal Reserve’s cautious outlook on the world economy.
Wall Street initially rallied Wednesday after Fed officials suggested they would likely only raise interest rates twice this year, down from earlier projections of four increases, and European shares opened on Thursday to a modest gain.
“The Fed is looking towards easier money for longer now,” said Patrick Spencer, vice chairman of equities at Robert W. Baird & Co.
But markets turned negative Thursday as focus shifted to the Fed’s cautious stance on the U.S. economy and its concerns around global growth.
Stock futures pointed to a 0.3% opening loss for the S&P 500. Changes in futures don’t necessarily reflect market moves after the opening bell.
The Stoxx Europe 600 was down 1.1% halfway through the session, weighed down by declines in the banking sector.
Also hurting European shares, data showed the eurozone’s trade surplus shrank in January, a sign that slowing growth in China and other large developing economies were hurting the area’s modest recovery.
Meanwhile, Norway’s central bank cut its main interest rate on Thursday as steep falls in the oil price weighed on the country’s economy, while the Bank of England left its key rate unchanged amid weakness in growth and inflation.
“Investor sentiment is still very low,” said Dennis Jose, European equity strategist at Barclays.
In currencies, the dollar continued its steep declines. The prospect of lower interest rates tend to make a currency less attractive to investors seeking yield.
Shares of European exporters fell as the euro climbed 0.9% against the dollar to $1.1313. A stronger currency reduces the competitiveness of exporters who repatriate earnings overseas.
In commodities, the weaker dollar lifted prices of copper and oil. Brent crude rose 0.9% to $40.69 a barrel, while copper futures in London gained 1.4% to $5,064 a ton.
The gains in commodities sent European mining shares nearly 5% higher, as shares in Anglo American PLC and Glencore PLC gained over 9%.
Gold gained nearly 3.3% to $1,270 an ounce, spurred by a weaker dollar and the prospect of lower rates.
Earlier, stocks in China and Australia ended higher, but Japan’s Nikkei Stock Average ended 0.2% lower as a stronger yen weighed on shares of exporters. The dollar was last down 1.1% against the yen at ¥111.4740.
After steep losses in January and early February, U.S. stocks are now off less than 1% from where they were at the end of December, and Wall Street closed at its highest level of the year on Wednesday.
“The market is telling us the outlook for earnings is better than expected and we’re not seeing a recession,” Mr. Spencer said.
Still, Guy Miller, chief market strategist at Zurich Insurance, questioned how long that rally will last given continued uncertainties such as the oil price.
“We’re probably due for a breather,” he said.
