LONDON, Aug 20 (Reuters) – The Federal Reserve’s doubts over the U.S. economic recovery kept markets in the red on Thursday, even though European stock indexes spent the morning recovering from initial losses. Wall Street was knocked from its recent highs on Wednesday after the Fed’s minutes from its July meeting spooked investors by showing that the swift labour market rebound seen in May and June had likely slowed. The S&P 500 had reached an all-time high earlier in the week as prices recovered to their pre-pandemic levels. The sudden bearishness spilled into Asian markets overnight and continued in the European session, although shares started to recover as the morning progressed. MSCI’s broadest index of Asia-Pacific shares outside Japan had its biggest daily decline in five weeks while the MSCI world equity index, which tracks shares in 49 countries, was down 0.6% at 1042 GMT. Several Fed policymakers said they may need to ease monetary policy to help get the economy through the coronavirus pandemic. “It’s easy to forget that we’ve just experienced one of the largest and most severe economic shocks on record,” said Kaspar Elmgreen, head of equities at Amundi.
“This story is not over yet, despite what the markets might be indicating,” he said.“We are navigating a ship here with unusually low forward visibility and a very wide range of outcomes.”
“The key question for investors is whether the policy responses are enough to mitigate the economic damage,” BH Global, a fund managed by Brevan Howard, said in an interim report published on Thursday. “Many businesses face solvency risks that are not addressed by borrowing; a debt overhang cannot be cured by more borrowing no matter how cheap it may be,” the fund’s report added. “Improved financial conditions are narrowly focused on a handful of large companies and benefiting stakeholders who need relatively little economic assistance. The result is that financial assets are expensive by many standard metrics.
“So long as a V-shaped recovery in risky assets fails to create a V-shaped recovery in economic activity, this tension is a recipe for increased volatility,” it said, adding that the U.S. presidential elections in November could be a catalyst for such volatility. Oil prices fell, as major producers warned of a risk to demand recovery. OPEC and its allies pressed oil nations that are pumping above output targets to cut more in August to September. It will take at least two years for the euro zone to fully recover from its deepest recession on record, according to a Reuters poll of economists. Markets also remained cautious about acrimonious U.S.-China relations. Nick Note: It seems like everyone knows what is coming but wallstreet. They are always the last to know… Thats how we make are living