Global Stocks Retreat As Virus Concerns Mount

Global stock markets sank Wednesday as coronavirus-linked fears eclipsed stimulus hopes and investors waited for news from US Federal Reserve head Jerome Powell, dealers said

London, (UrduPoint / Pakistan Point News - 27th Jan, 2021 ):Global stock markets sank Wednesday as coronavirus-linked fears eclipsed stimulus hopes and investors waited for news from US Federal Reserve head Jerome Powell, dealers said.

Investors also trod warily as the IMF warned that financial markets might be too complacent about current conditions.

"Sentiment has been hurt in part due to concerns about the vaccine delays in Europe, while profit-taking ahead of key technology earnings reports and the conclusion of the Federal Reserve's policy meeting also weighed on asset prices," remarked Fawad Razaqzada at ThinkMarkets.

The dollar rose against the euro before the Fed's latest decision on interest rates, which are forecast to be held at rock-bottom given the pandemic uncertainties.

Investors will then follow Fed Chair Powell's press conference for clues on the outlook for US monetary policy.

However, there seems little chance of new Fed stimulus because new US President Joe Biden has already proposed a gigantic $1.9 trillion rescue package to boost the nation's economy.

"It's a jittery moment for markets at the start of the year, with investors craving constant reassurance that the rug won't be pulled out from beneath them by the central bank," said Craig Erlam at currency trading platform Oanda.

"It's nothing to be overly concerned about at this point but it does highlight the need for the Fed to tread carefully." Meanwhile, investors might have become overly complacent about financial conditions, raising the risk of a sharp downturn, the International Monetary Fund warned.

"Financial stability risks have been in check so far, but we cannot take this for granted," cautioned Tobias Adrian, head of the IMF's Monetary and Capital Markets Department.

With new, more transmissible versions of the coronavirus spreading rapidly, governments are being forced to reimpose strict containment measures and their efforts to administer jabs are being hampered by distribution problems.

Observers said that while the overall outlook was positive -- the IMF has lifted its 2021 global growth forecasts -- the first few months of the year could be painful.

In Europe, several stocks saw sharp swings higher which analysts said may be an indirect consequence of movements around GameStop in the United States.

Shares in the video game shop chain have seen wild swings recently as short sellers and day traders have battled it out. They were up 150 percent in late morning New York trading on Wednesday.

Short sellers borrow a share then sell it, hoping to buy it later at a lower price, thereby earning a profit when they return it.

But investors seeking to short GameStop have been confronted by day traders who have piled into the company's shares, driving up the price in what is called a "short squeeze".

This has forced the short sellers into huge losses as they buy back shares, and there is speculation they may be buying up shares to close short positions on certain European shares.

"Fears are circulating that some investment funds might be quickly closing out positions as a way of shoring up their cash positions," said market analyst David Madden at CMC Markets UK.

While this is boosting share prices for the moment, it could quickly swing the other way.

"It is early days yet but we might see selling pressure ramp up for fear there could be a stampede for the exit," Madden added.

- Key figures around 1630 GMT - New York - Dow: DOWN 1.1 percent at 30,605.43 points EURO STOXX 50: DOWN 1.6 percent at 3,536.38 London - FTSE 100: DOWN 1.3 percent at 6,567.37 (close) Frankfurt - DAX 30: DOWN 1.8 percent at 13,620.46 (close) Paris - CAC 40: DOWN 1.2 percent at 5,459.62 (close) Tokyo - Nikkei 225: UP 0.3 percent at 28,635.21 (close) Hong Kong - Hang Seng: DOWN 0.3 percent at 29,297.53 (close) Shanghai - Composite: UP 0.1 percent at 3,573.34 (close) Euro/dollar: DOWN at $1.2095 from $1.2160 at 2200 GMT Dollar/yen: UP at 104.09 yen from 103.62 yen Pound/dollar: DOWN at $1.3702 from $1.3736 Euro/pound: DOWN at 88.29 pence from 88.52 penceWest Texas Intermediate: UP 0.7 percent at $52.96 per barrelBrent North Sea crude: UP 0.5 percent at $56.17 per barrel