International stocks declined, after the Federal Reserve vowed to keep its monetary policy aggressive and struck a cautious note on jobs, prompting investors to revisit their assumptions about U.S. economic recovery.
Stock-index futures tied to the S&P 500 shed 1.5%, suggesting a lower opening for U.S. markets Thursday.
The pan-continental Stoxx Europe 600 fell 2.2%. In Asia, Hong Kong’s Hang Seng fell 1.8%. Stock benchmarks in Japan and Australia dropped by 2.8% and 3.1%, respectively. The Shanghai Composite retreated 0.8% and the South Korean Kospi Composite fell 0.9%.
On Wednesday, Federal Reserve officials signaled plans to keep interest rates near zero for years, and said they would maintain their recent pace of purchases of Treasury and mortgage securities.
Fed Chairman Jerome Powell played down data showing the U.S. added 2.5 million jobs in May, saying millions of people might not return to their prior roles or industries, and it “could be some years before we get back to those people finding jobs.”
Fed projections for the U.S. economy in 2021 were unusually uncertain, with at least one official projecting a 1% contraction while most expected growth of around 5%.
Investors are becoming cautious about the outlook, said Ken Wong, Asian equity portfolio specialist at Eastspring Investments.
“If the Fed assumes that the U.S. won’t reach full recovery by 2022, and jobs won’t come back to acceptable levels, then what will happen to 2021?” he asked. He said a lot of pricing in the equity markets implied a very strong recovery next year.
The Fed reminded investors the economic situation remains complicated and far from normal, and in particular that the labor market is still weak, said David Gaud, chief investment officer for Asia at Pictet Wealth Management.
Mr. Gaud said stocks in sectors whose performance is closely tied to economic cycles had helped drive the most recent leg of the market rebound, alongside deep-value stocks—shares that look cheap based on measures such as earnings or book value. However, Mr. Gaud said investors needed to be careful to stick to higher-quality companies, given indications that the economic recovery won’t be V-shaped.
The dollar strengthened, with the WSJ Dollar Index adding 0.4%. That put the index, which tracks the dollar against 16 other currencies, on course to break a 10-day stretch of declines that had pushed it to its weakest point since March 9.
In bond markets, the yield on the 10-year U.S. Treasury note ticked down to 0.708% from 0.744% Wednesday. Yields fall as bond prices rise.
Brent crude, the global oil benchmark, shed 3.5% to $40.26 a barrel.
The Fed’s message landed around the world. In Asia, the South Korean Kospi Composite fell 0.9%.
Photo: Lee Jin-man/Associated PressWrite to Xie Yu at Yu.Xie@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com
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June 11, 2020 at 02:35PM
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Global Stocks Drop on Gloomy Federal Reserve Outlook - The Wall Street Journal
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