Markets slide after Federal Reserve surprise and ahead of Trump China meeting – business live

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Investors appear nervous ahead of a meeting between US president Donald Trump and his Chinese counterpart Xi Jinping. Trump, of course, said one of his first acts as president would be to label China a currency manipulator, but he has taken a more conciliatory tone since actually coming into power. Even so, with North Korea firing another missile this week, the meeting could be a tense one.

Markets had already been unsettled by the latest minutes from the Federal Reserve. The US central bank is keen not to upset the applecart but seems to have done so anyway. To much surprise, the Fed indicated it expected to start shrinking its $4.5trn balance sheet later this year, earlier than expected. The bank has build up a portfolio of bonds and mortgage backed securities as part of its stimulus measures in the wake of the global financial crisis, and reducing those assets would be a key moment in moving back to more normal circumstances.

Barclays analysts said:

To our surprise, the minutes to the March meeting contained extensive discussion on balance sheet policies. We had expected this discussion to take place at the June FOMC meeting, with subsequent deliberations communicated around the timing of the annual Economic Symposium at Jackson Hole in August. However, the committee moved quicker than we anticipated, and staff weighed in with various alternative scenarios during the March meeting. The desire to signal sooner than later is likely a function of the committee’s wish to avoid adverse market reactions.

If that was the aim, it seems to have failed. The length of the discussion on this move and the uncertainty it casts over future interest rate rises saw Wall Street turn sharply lower after strong gains earlier on. The Dow Jones Industrial Average, which at one point on Thursday was nearly 200 points higher, ended down 41 points following the minutes.

Asian markets followed suit, with Japan’s Nikkei falling 1.4% to a four month low. European markets are forecast to follow suit:

There were other concerns, with a disappointing Chinese service sector survey. Michael Hewson at CMC Markets said:

A disappointing Caixin services PMI number from China…showed that economic activity, though positive hit its lowest level since September last year, casting doubt on the robustness of recent officials data, which panted a far rosier picture.

Elsewhere, eurozone retail sales are due later, along with the weekly jobless claims from the US.