LONDON: – European stock markets slid Wednesday after sharp gains the day before, while oil prices drifted to new lows, as investors awaited the outcome of the US Federal Reserve meeting.
Oil prices extended their losses to fresh five-and-a-half-year lows, while the Russian ruble rebounded a bit after its recent plunge against the dollar.
Global markets have been in turmoil this week owing to concerns about the effect of plunging oil prices on energy firms as well as the crude-dependent Russian economy, which is also straining under Western sanctions.
Eyes were on the outcome to the Fed’s two-day meeting, with dealers looking for some guidance over monetary policy amid growing speculation that the central bank will raise interest rates by the middle of 2015.
“Decision day for the Federal Reserve and the big question is whether they will refine their forward guidance and remove the term ‘considerable time’ from their description of how long they plan to keep interest rates low to something more data dependent,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor.
“This term is highly significant and its removal would signal the Fed’s intention to start raising rates within the next few months and have a major knock-on effect for both equity and bond markets. However, given current market fragility, the Fed will need to tread carefully.”
The prospect of a tighter US monetary policy helped push up dollar, with the euro sliding to $1.2467 in morning trade from $1.2500 late in London on Tuesday.
In early trading, London’s benchmark FTSE 100 index was down 0.74 percent to 6,284.82 points, Frankfurt’s DAX 30 dropped 1.08 percent to 9,460.49 points and in Paris the CAC 40 retreated 0.90 percent to 4,056.45 compared with Tuesday’s close.
“European shares are trading lower this morning failing to extend yesterday’s impressive afternoon turnaround as a sharp sell-off in late US trading is hurting sentiment,” said Markus Huber, senior analyst at broker Peregrine & Black.
US stocks Tuesday finished lower following a topsy-turvy session amid unease over plunging oil prices and a crash in the Russian ruble, traders had said.
– Ruble support –
Russia’s finance ministry was Wednesday selling its foreign currency to support the ruble, a spokeswoman told AFP.
“The finance ministry considers the ruble extremely undervalued and is starting to sell its left-over currency on the market,” spokeswoman Svetlana Nikitina said.
The Russian currency dived 20 percent during trading on Tuesday to 80 against the dollar and 100 to the euro, testing President Vladimir Putin’s ability to ride out both the country’s economic storm and his clash with the West.
The Russian central bank raised its key interest rate to 17.0 percent from 10.5 percent in a bid to prop up the currency, but the move “has failed to stabilise the ruble”, said Sebastien Barbe, head of emerging market research and strategy at Credit Agricole.
The rate rise and plunging oil prices suggest “a meaningful recession next year”, Barbe said in a note to clients.
“Markets are on a true roller-coaster ride at the moment, as the domino effects from lower oil prices translate into mounting risks for countries, sectors and individual stocks,” said O’Keeffe.
“With double digit daily moves in currency markets and high volatility causing wild swings in minutes, many investors are understandably reluctant to commit to a long-term position.”