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GLOBAL MARKETS-Stocks buckle, dollar stirs as divided Fed disappoints

Thu, 17th Sep 2020 09:53

* European, Asian stocks, S&P500 futures down 1%

* Outflows from U.S. tech shares continue

* Fed suggests low rates until 2023

* Dollar gains broadly, yen eyes Suga's policies

* Oil and metals eased back by risk-off mood

* Graphic: 2020 asset performance http://tmsnrt.rs/2yaDPgn

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

*

By Marc Jones

LONDON, Sept 17 (Reuters) - The dollar stirred and equities
recoiled on Thursday after a divided U.S. Federal Reserve dented
stimulus hopes, TikTok's tug-of-war clobbered tech stocks and
dire European car sales underscored coronavirus troubles.

Traders were also watching Bank of Japan and Bank of England
meetings as well as plenty more too, but the tone was set by the
events overnight at the Fed and in the tech war.

The Fed extended its 'dot plot' forecast of unchanged U.S.
interest rates out to end-2023, but going no further than that,
and upgrading growth forecasts so that GDP is now seen reaching
pre-pandemic levels next year rather than in 2022.

The downtrodden dollar rebounded across the board, given it
its best daily rise in over a week against a basket of other top
currencies and punting the euro back under $1.18.

Bond markets seemed less enlivened with U.S. Treasuries and
German Bunds both quiet in early European trading
though choppy equities markets were making up for it.

Tech stocks shed 1.6% after U.S. President Donald Trump's
had warned China’s ByteDance should not keep control of the U.S.
operations of social media platform TikTok, a move that had also
seen Chinese heavyweight Alibaba drop more than 4% overnight.

Banks, automakers and miners were
the biggest sectoral fallers though, all dropping as much as 2%.
Volkswagen, Renault and PSA Group
fell between 2.5% and 3% after industry data showed
European car sales fell by 17.6% in August.

"Those who were expecting more input from Fed monetary
policy after the adoption of an average-inflation target regime
remained disappointed," UniCredit analysts wrote in a note.

"While the Fed expects the Fed funds rate to remain flat
through 2023, it will need more time to assess the status of the
economy and to change its remaining tools accordingly."

The stronger dollar inflicted some damage in emerging
markets too. Turkey's battered lira hit its latest record low
, Argentina announced new capital controls and there was a
third straight day of falls for eastern European currencies.

MSCI's broadest index of Asia-Pacific shares outside Japan
had lost 1% overnight after five straight days
of gains while Japan's Nikkei shed 0.6%.

"In essence, high-tech shares were overbought and we've seen
a correction since early this month," said Soichiro Monji, chief
strategist at Nishimura Securities in Kyoto. "I think that is
still continuing, with the Fed just being a fresh trigger."

The Fed said it would keep interest rates near zero until
inflation is on track to "moderately exceed" the central bank's
2% inflation target "for some time."

New economic projections released with the policy statement
showed most policymakers see interest rates on hold through to
at least 2023, with inflation not breaching 2% over that period.

"Of course, sensible people wouldn't really hold anyone to
macro forecasts that far out so we'll cross that bridge when we
get to it," said Derek Holt, head of capital markets economics
at Scotiabank in Toronto.

"Nevertheless, markets are priced for basically one outcome
here and that is little inflation and no hikes for years to
come."

BOJ, JOBS

The Australian dollar lost 0.4% to $0.7278, having
erased earlier gains made after stronger-than-expected local
jobs data.

The Chinese yuan also dropped about 0.35% to 6.7686 per
dollar, stepping back from a 16-month high hit on
Wednesday.

The yen was little moved at 104.98 to the dollar
having hit a 1-1/2-month high of 104.80 per dollar overnight.

With focus on new Prime Minister Yoshihide Suga, who is seen
by some as a strong opponent of a higher yen, some traders said
the market may be tempted to test his resolve on the currency.

"One interesting speculative trade in the near-term will be
to long the yen ahead of the coming long weekend in Japan," said
a senior trading manager at a major Japanese bank.

The Bank of Japan maintained its policy as widely expected.

As the dollar gained, oil prices gave up some of their big
gains made on Wednesday on a drawdown in U.S. crude and gasoline
inventories, with Hurricane Sally forcing a swath of U.S.
offshore production to shut.

Brent crude dropped 1% to $41.80 per barrel while
U.S. crude fell 1.2% to $39.68 per barrel. Gold also
slipped 0.8% to $1,943.8 per ounce.

(Additional reporting by Hideyuki Sano in Tokyo; Editing by
Angus MacSwan)

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