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While the decision to hold interest rates by the U.S. Federal
Reserve was anticipated by markets, some participants had
expected a more cautious approach from the central bank after a
stock market rout in October.
"That the Fed indicated an optimistic view on the economy
despite the turbulence in stock markets in October suggests more
rate hikes are in store and that is not positive for risky
assets," said Lefteris Farmakis, a strategist at UBS in London.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> fell
half a percent, its biggest drop since Oct. 26, as the Fed
indicated that another rate increase is likely in December. U.S.
stock index futures <ESc1> are down 0.5 percent.
Rick Rieder, co-manager of the BlackRock fixed income global
opportunities fund, said likely greater tightening in financial
conditions could start affecting other sectors of the U.S.
economy such as autos and small businesses.
European stocks were a sea of red. MSCI's main European index <.MSER>
was down nearly 1 percent and the broader Euro STOXX 600 <.STOXX>
fell 0.7 percent.
Stocks in Hong Kong and China were the main losers in Asia,
where a financial sector sub-index <.CSI300FS> fell more than
two percent after China's banking watchdog told lenders to
allocate at least a third of new loans to private companies,
raising the prospects of a jump in bad assets.
DOLLAR UP
A confident Fed also gave a boost to the dollar, which had
weakened sharply after mid-term elections this week raised the
prospects of U.S. political gridlock. Friday's rise puts the
greenback on track for a fourth consecutive week of gains.
The greenback gained a quarter of a percent against the euro <EUR=EBS>
and half a percent against the British pound. <GBP=D3>
Further dollar gains can also pose headwinds for global risky
assets as that translates into tightening global financial
conditions as most emerging market economies borrow in dollars.
The dollar index measuring the currency against its six major
rivals <.DXY> gained 0.25 percent to 96.86.
Losses in equities pressured bond yields lower, with safe-haven
benchmark debt in Germany and the United States softening across
the board, pressured by world trade frictions and a budget
standoff between Italy and Brussels.
Oil prices fell to multi-month lows as global supply increased
and investors worried about the impact on fuel demand from of
lower economic growth and trade disputes.
Benchmark Brent <LCOc1> crude oil fell to its lowest since early
April, down more than 18 percent since reaching four-year highs
at the beginning of October.
The sturdy dollar tarnished the appetite for safe-haven gold <XAU=>,
with the price down 0.2 percent at $1221.42 an ounce.
Still, market watchers said appetite for equities is likely to
remain firm unless there is a big sell-off in credit markets or
a spike in volatility.
An ETF <HYG> tracking the performance of high-yield debt
consolidated near three-week highs while gauges of volatility
edged lower after a spike earlier this week.
"As long as these two indicators are not flashing red, stock
markets should remain supported," said Marc Ostwald, a global
strategist at ADM Investor Services in London.
For the Reuters Live Markets blog on European and UK stock
markets open a news window on Reuters Eikon by pressing F9 and
type 'Live Markets' in the search bar.
(Reporting by Saikat ChatterjeeAdditional reporting by Dhara
Ranasinghe, Editing by David Goodman, William Maclean)
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