End to Fed stimulus, China slowdown spark world sell-off

Thu Jun 20, 2013 8:45am EDT
 
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By Richard Hubbard

LONDON (Reuters) - Clear signals from the U.S. Federal Reserve that it will soon stop pumping money into the global economy and data pointing to slower growth in China sparked sharp falls in bonds, shares and commodities on Thursday.

Emerging markets, many of which have been primed by the cheap Fed cash, saw some of the biggest selling as investors rushed to the exits.

MSCI's benchmark index for emerging equities .MSCIEF slumped more than 3.3 percent and shares across the Asian Pacific region outside Japan .MIAPJ0000PUS recorded their biggest daily drop since late 2011.

World stocks in general .MIWD00000PUS saw the largest one-day drop for 12 months, falling 1.85 percent with U.S. stock futures pointing to further losses when Wall Street opens .N.

Among other unwanted milestones, gold and silver tumbled to near a three-year lows while South African 10-year bond yields posted their biggest one-day rise in a decade.

The initial catalyst for the selloff was Fed Chairman Ben Bernanke's surprisingly strong commitment to end the central bank's asset buying by the middle of 2014. That sent 10-year U.S. Treasury note yields to 15-month highs.

"The Fed has reduced uncertainty about some of its plans and that is probably one of the key differences to what the markets' expectations were heading in to the meeting," said Ken Dickson, investment director at Standard Life.

"I think it is quite reasonable that the tapering will begin later this year but what looks a little bit more optimistic is that the process will be finished by mid next year."   Continued...

 
Electronic information boards display market information at the London Stock Exchange in the City of London January 2, 2013. REUTERS/Paul Hackett