US Fed Reserve policy concerns weigh on markets

AP and AFP

LONDON/HONG KONG–Growing expectations that the U.S. Federal Reserve will soon start to reduce its monetary stimulus weighed on markets Friday ahead of the next batch of U.S. economic data. Despite the uncertainty, the main focus in the markets remains the Fed, and when it will start tapering its stimulus. The latest shift in sentiment came after figures Thursday showed weekly U.S. jobless claims fell to a near six-year of 320,000. The claims figures reinforced views that the economy is strong enough to withstand less support from the Fed. The central bank is currently buying US$85 billion of financial assets each month in an effort to lower interest rates to spur borrowing and economic growth. “Investors reviewed the good U.S. data yesterday and decided that it presaged Fed tapering in September, so it will be interesting to see if today’s numbers, including housing starts, building permits and the Michigan confidence index, are treated in a similar vein,” said Chris Beauchamp, market analyst at IG. Ahead of the next load of U.S. data, stocks were largely drifting. U.S. stocks were poised to make up some of Thursday’s losses, with Dow futures and the broader S&P 500 futures up 0.2 percent. “The jobs data was a shock to the market, and put the whole tapering issue back on the front burner again,” said Hiroichi Nishi, SMBC Nikko Securities general manager of equities. “In these thinly traded markets, the initial sell-off is likely to be sharp before things stabilize,” Nishi told Dow Jones Newswires. Shares in information technology giant Cisco lost 7.2 percent after it reported a “softening” outlook in emerging economies and announced it would cut 4,000 jobs. In Europe, Britain’s FTSE 100 fell 0.1 percent to 6,479 while Germany’s DAX dropped 0.2 percent to 8,361. The CAC-40 in France was bucking the trend somewhat, rising 0.2 percent to 4,101. Meanwhile in Asia, Tokyo shares ended down 0.75 percent, or 174.59 points, at 13,578.35, mirroring overnight falls in the United States that were stoked by disappointing corporate earnings results and better-than-expected unemployment data. Seoul also finished down, 0.2 percent, or 3.8 points, at 1,920.11, while Sydney closed down 0.75 percent, or 38.5 points, at 5,113.9.

Chinese markets experienced a turbulent morning of trade. Shanghai shares ended down 0.65 percent, or 13,43 points, at 2,068.45.

During midmorning, the index briefly jumped more than five percent, a spike which was later blamed on a trading glitch.

Hong Kong shares spiked shortly afterwards but fell in line with Shanghai, finishing 0.10 percent, or 21.44 points, down at 22,517.81. Everbright Securities later said it found “problems” with its trading system, though it did not take direct responsibility for the surge. Trading in Everbright shares was suspended for the afternoon. India’s stock market also took a beating, falling by 3.97 percent, or 769.41 points, to 18,598.18 as the rupee plunged to a new record low of 62.03 against the dollar.

Gold was down at US$1,362.40 at 1050 GMT from 1,365.00 late Thursday.