Stocks tumble, dollar climbs as taper and virus fears spook markets

By Karin Strohecker and Alun John

LONDON/HONG KONG (Reuters) - Stocks stumbled, global bond yields fell and the dollar hit a nine-month peak on Thursday as a double-whammy of Fed taper fears and COVID worries haunted equity markets and spurred a new rush into safe haven assets.

Europe's pan-regional STOXX 600 index suffered its biggest daily decline in a month. Its 2% slide dragged the global stocks benchmark to a three week low.

U.S. futures suggested more pain ahead on Wall Street.

Commodities were also under pressure with oil down for a sixth straight session and at three-month lows, while growth bellwether copper fell to its lowest in more than four months.

The minutes from the Federal Reserve's July meeting published on Wednesday showed officials expected they could ease stimulus this year, even though there was division over the labour market recovery and the level of risk posed by rising coronavirus cases.

"It is just a sea of red and top of the agenda is, what the Fed is going to do," said Neil MacKinnon, global macro strategist at VTB Capital in London.

Focus now shifts to the Fed's annual research conference in Jackson Hole, Wyoming next week for clues on the central bank's next steps.

"We've got Jackson Hole next week, there'll be the September FOMC meeting, so equity markets are running scared of what the Fed might do and now we could be on the brink of a so called taper tantrum," MacKinnon added.

SAFE HAVENS SHINE

The dash to safe haven assets helped U.S. Treasury yields cling to recent lows, with benchmark 10-year yields at 1.23%.

Euro zone government bond yields also fell with German 10-year bond yields, the benchmark for the bloc, falling a basis point to -0.49%, within touching distance of a six-month low hit earlier this month.

Concerns that the peak of the economic growth rebound might have passed loomed large, fuelled by concerns over the spread of the Delta virus variant as well as supply chain issues.

Japan's Nikkei share average fell 1.1% to its lowest since early January, pulled down by Toyota Motor whose shares tumbled on news that it will cut its output by 40% next month due to a chip shortage.

The slump in Asian stocks to their lowest level this year, also rattled policy makers. Taiwan's Finance Ministry has called state-owned banks to suggest they buy an "appropriate" amount of stocks, Reuters reported, citing sources familiar with the matter.

"You can't find a bull out there," said Kay Van-Petersen, a global macro strategist at Saxo Capital Markets in Singapore.

He said "an accumulation of things," from the spread of the Delta virus variant to a tech crackdown in China and concern about Fed tapering, was enough to hit fragile sentiment.

Frayed nerves boosted the safe haven dollar, which rose 0.35% to $1.167 per euro, hitting its highest since November 2020 while the dollar index rose 0.3% to hit its highest since November 2020.

Norway's crown extended falls against the dollar to 1.1% after the central bank kept its key policy rate on hold at a record low of 0.0% but also said it would stick to its plan to raise interest rates next month as the economy rebounds.The CBOE Volatility index, also known as Wall Street's fear gauge, jumped 3.66 points to its highest level in about a month overnight and the S&P 500 index fell 1% to a two-week low. [.N]

Oil prices fell for a sixth day in their longest losing streak since February 2020, with Brent crude dropping nearly $2 a barrel to trade at $66.37 and U.S. crude slipping $2.2 to trade at $63.32.

The stronger dollar also weighed on gold, with the spot price dropping 0.5% to around $1,776.66.

 

(Reporting by Karin Strohecker in London and Alun John in Hong Kong. Editing by Jane Merriman)