World shares slide on growth, Fed concerns, dollar flat

Thu Sep 12, 2013 8:12am EDT
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By Richard Hubbard

LONDON (Reuters) - A drop in euro zone factory output after a run of weaker-than expected U.S. data stalled an eight-day rise in world shares on Thursday, jangling the nerves of investors positioning for a shift in Fed policy next week.

Moves towards a diplomatic solution on Syria gave some support to financial markets, but doubts over what exactly the Fed will announce on September 18 increase the potential for near-term volatility.

"The Fed is still likely to taper next week or in October but the trajectory of the tapering that we had assumed can no longer be taken for granted," said Ned Rumpeltin, head of G10 FX strategy at Standard Chartered Bank.

Euro/dollar and dollar/yen one-week implied volatilities - a gauge of how sharp price swings will be next week - have shot up as investors try to guess when and how fast the Fed will start to run down its monetary stimulus.

The one-week euro/dlr implied volatility traded at around 7.85 percent, much higher than the equivalent one-month rate which was around 7.2 percent.

The one-week dollar/yen implied volatility was also trading much higher than the one-month level.

Uncertainty has grown with weaker-than-expected U.S. data, including jobs growth in August and consumer spending, home building, new home sales, durable goods orders and industrial production in July.

A Reuters poll of economists on Monday this week found most now see the Fed trimming its $85 billion monthly spend on bonds by about $10 billion. This was down from $15 billion in a poll before the jobs report.   Continued...

Traders work on the floor of the New York Stock Exchange August 28, 2013. REUTERS/Brendan McDermid