Global Stocks tumbled and commodities took a beating as investors reacted to a grim economic outlook from the U.S. Federal Reserve. The Fed’s statement that the U.S. economy faces “significant downside risks” and worry that the U.S. central bank’s $400 billion program, unveiled on Wednesday, would be insufficient to jump-start growth brought investor fears of another global recession to the forefront. The plan, dubbed Operation Twist, was to exchange $400 billion US worth of short-term bonds for the same amount of longer-term bonds. The plan is expected to push down longer-term U.S. borrowing rates and spur the economy.
On Wall Street, the Dow Jones industrial average was down more than 375 points, or 3.4 per cent, at 10,750, while the Nasdaq composite index was off 64 points, or 2.5 per cent, at 2,474, and the S&P 500 fell 33 points, or 2.8 per cent, to 1,134.
This sell-off “is a direct reaction to the Fed’s statement and actions,” said John Bollinger, head of Bollinger Capital Management in Manhattan Beach. “It’s the markets’ vote that the actions aren’t commensurate with the risks described in the statement.”
In Europe, the benchmark Euro Stoxx 50 index was down 4.9 percent. The FTSE 100 in London closed down 4.67 percent and the CAC 40 in Paris was down 5.25 percent. “Today, we really seem to be stuck in a negative spiral,” said Matthias Jasper, head of equities at WGZ Bank in Düsseldorf. “Investors just want to keep their exposure low and watch from the sidelines.”
Earlier in Asia, stocks also fell. Japan’s Nikkei 225 dropped 2.1 percent to close at 8,560.26. South Korea’s Kospi slid 2.9 percent to 1,800.55. Australia’s S&P/ASX 200 was 2.6 percent down at 3,964.90.
Hong Kong’s Hang Seng saw the biggest fall, diving over 900 points, or 4.9 percent, to close at 17,911.90.
In mainland China, the Shanghai Composite Index closed down 2.8 percent at 2,443.06.