LONDON — Global markets fell Thursday after the Federal Reserve balked at providing major new stimulus to the US economy, while key surveys showed manufacturing activity continued to contract in both China and Europe, raising concern over the outlook for the world economy.
At the end of a two-day policy meeting Wednesday, the Fed said it was extending a program called Operation Twist, under which the Fed swaps short-term bonds for longer-term ones to help keep long-term interest rates low.
But analysts said the program’s extension might not provide much benefit. Businesses and consumers who aren’t borrowing now aren’t that likely to change their minds just because rates dropped a little more.
Stan Shamu of IG Markets in Melbourne said in a market commentary that investors were “disappointed” that the Fed had not chosen to embark on a third major round of bond purchases, known as quantitative easing.
Such purchases would lower rates even further. The Fed has completed two such programs, buying more than $2 trillion in Treasury bonds and mortgage-backed securities, to help prop up the economy.
“Sentiment also dampened after the Fed cut estimates for economic growth on the back of a slowing jobs and tough credit markets,” Shamu said.
By late morning in Europe, Britain’s FTSE 100 was off 0.5 percent at 5,596.68 and Germany’s DAX dropped 0.4 percent to 6,368.42. France’s CAC 40 shed 0.3 percent to 3,116.07.
Futures augured a weak start on Wall Street with futures for both the Dow and the S&P 500 down 0.2 percent, at 12,740 and 1,347.50, respectively.
Appetite for financial assets such as stocks was also dented by the results of a monthly HSBC survey which showed that manufacturing in China, the world’s No. 2 economy, has continued to contract.
China’s growth has been a pillar of the global economy in recent years, so its slowdown has been of particular concern to investors.
In the 17-country eurozone, the equivalent manufacturing survey, called the purchasing managers’ index, fell to 44.8 points in June from 45.1 the previous month. A number below 50 indicates contraction. A related survey on the services sector also showed declining activity, suggesting a drop in GDP in the second quarter.
An independent audit on the Spanish banks’ capital needs will be delivered to the government on Thursday. Estimates have ranged from €50 billion to €100 billion.
European leaders are struggling to decouple the risk that banks and government finances pose to each other in Europe. — AP