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Stock markets on both sides of the Atlantic fell as investors expected central banks to relax anti-crisis stimulus that helped prop up financial markets throughout the pandemic.
The Stoxx Europe 600 regional stock index fell 0.8%, after losing 0.5% in the previous session, while London’s FTSE 100 slipped 0.5%.
Wall Street followed European stock markets lower, with the blue-chip S&P 500 opening 0.2% lower and the technology-focused Nasdaq Composite 0.4% lower.
At its meeting on Thursday, analysts expect the European Central Bank to announce a slowdown in bond purchases due to improving economic prospects in the bloc.
The ECB’s € 1.85 billion emergency pandemic purchase program, its main pandemic policy, bought € 80 billion each month in bonds for much of this year in order to keep lending costs low in the euro area. But purchases are expected to be largely reduced to around 60 billion euros.
After Wall Street’s Stoxx 600 and S&P 500 hit record highs in recent weeks, fund managers said it makes sense for those benchmarks to drop at this point.
“Investors are back from the summer and are thinking of the end of the golden loop environment, where you had an economic recovery and a very accommodating monetary policy,” said Nadège Dufossé, head of strategy cross-asset of the European fund manager Candriam.
“The ECB seems to be the first major central bank to communicate on tapering [asset purchases]She added, with investors around the world ready “to see how they do it and how hawkish they seem.”
The U.S. Federal Reserve is also moving closer to cutting its $ 120 billion monthly bond purchases, which, like the ECB’s program, have depressed debt interest rates and boosted l relative attractiveness of stocks. Strategists at investment bank Goldman Sachs believe the Fed is most likely to announce the so-called tapering in November.
“The big picture is that the reduction will start this year,” St Louis Fed Chairman James Bullard, a hawkish member of the central bank’s monetary policy committee, told the Financial Times.
Marija Veitmane, senior strategist at State Street Global Markets, said she did not expect a prolonged correction in the stock markets as central banks would likely keep interest rates at historically low levels until the end. next year.
“This is a time when you could take a small step forward in terms of risk appetite, but now is not the time to become risk averse,” she said. “There is a strong distinction between tapering and rate hikes. “
The yield on the 10-year German Bund, which moves in the opposite direction to its course, fell 0.02 percentage point to minus 0.34%, but remained close to its highest level in two months. The equivalent of the US Treasury fell by the same margin to 1.35% after hitting its highest level since mid-July on Tuesday.
The dollar index, which measures the US currency against six peers, rose 0.1 percent. The euro lost 0.2% against the dollar, buying up $ 1.1813.
Elsewhere, Brent crude rose 1.3% to $ 72.5 a barrel as the oil benchmark was pushed higher by U.S. producers struggling to resume operations after Hurricane Ida swept through the energy-producing region of the Gulf of Mexico.