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Global markets fall on US Fed fears
June 21, 2013, 2:38 am

Federal Reserve Board Chairman Ben Bernanke failed to calm global markets [Getty Images]

Fed Chairman Ben Bernanke failed to calm global markets [Getty Images]

US stocks continued to plummet on Thursday, after Federal Reserve Chairman Ben Bernanke said Wednesday that the Fed may taper stimulus efforts later this year following a two-day policy meeting.

Bernanke said the Fed may soon reduce the massive bond buying effort and could halt the practice by next year.

However, he tried to alleviate global market fears by saying nothing had been predetermined and that any such action would haveto depend on a review of incoming data and economic forecasts.

“To use the analogy of driving an automobile, any slowing in the pace of purchases will be akin to letting up a bit on the gas pedal as the car picks up speed, not beginning to apply the brakes,” Bernanke said.

But the markets reacted with a lot of speculation.

The Dow Jones Industrial Average plunged 353.95 points, or 2.34 per cent, to 14,758.24 points. The S&P 500 fell 40.74 points, or 2.50 per cent, to 1,588.19 points. The Nasdaq Composite Index shed 78. 57 points, or 2.28 per cent, to 3,364.63 points.

The three stock indices dropped to their lowest levels over one and a half months. The Dow and S&P 500 logged their biggest one- day losses this year.

“I do not believe this is the beginning of a bear market for the US stock market. Rather, I think the market sell off we have seen since Bernanke press conference yesterday is the market coming to the realization that the Fed will eventually curtail its bond buying,” Gregory J. Keating, managing director of New York- based James E. Coffey Securities Inc, told Xinhua on Thursday.

The Fed announced Wednesday to keep its federal funds rate and pace of asset purchases unchanged in its June meeting, but Bernanke struck a hawkish chord in a news conference following the meeting when he said bond buying could be reduced later this year, depending on economic conditions.

Bernanke’s remarks sent the US equity market into a free fall in the last hour of trading on Wednesday, with all three major indices losing over 1 per cent.

Global markets also plunged on tapering fears on Thursday. In Asian stock markets, the Japanese Nikkei dropped 1.74 per cent and China’s benchmark Shanghai Composite Index fell 2.77 per cent. In Europe, the major stock indices skidded about 3 per cent.

Keating added: “Short term, I think the market may continue to see weakness on this realization however long term I believe it is positive in the fact that the Fed feels the economy is picking up and will eventually be able to sustain itself without the Feds involvement.”

The economic data from the US came in mixed on Thursday, exerting little influence on the stock market.

In the week ending June 15, the advance figure for seasonally adjusted initial claims was 354,000, an increase of 18,000 from the previous week’s revised figure of 336,000, the US Labor Department reported Thursday. The fresh figure was higher than analysts’ estimates of rising to 340,000.

Meanwhile, the four-week moving average, a less volatile measure, increased 2,500 to 348,250, the department added.

Moreover, the US flash manufacturing Purchasing Managers’ Index (PMI) slipped to 52.2 in June, little changed from May’s 52. 3, suggesting that US manufacturing expansion remained modest during June, global financial information services company Markit said Thursday in a report.

In the housing sector, US existing-home sales rose 4.2 per cent to a seasonally adjusted annual rate of 5.18 million in May from 4.97 million in April, according to the National Association of Realtors.

Among other data, the Federal Reserve Bank of Philadelphia said Thursday that its general business conditions index for June increased from minus 5.2 in May to 12.5, its highest reading since April 2011. The Conference Board Leading Economic Index for the U. S. increased 0.1 per cent in May to 95.2.

The CBOE Volatility Index, widely considered as a fear gauge of the market, hit 20 for the first time this year. The index surged 23.14 per cent to end at 20.49.

All key sectors in the S&P 500 finished sharply lower.

In other markets, light, sweet crude for July delivery lost 2.84 dollars, to settle at 95.4 dollars a barrel on the New York Mercantile Exchange on Thursday. Brent for August delivery went down 3.97 dollars, to close at 102.15 dollars a barrel.

Gold future for August delivery on the COMEX division of the New York Mercantile Exchange tumbled 87.8 dollars, or 6.39 per cent, to settle at 1,286.2 dollars per ounce on Thursday. It was the first time that the gold price fell below the 1,300 level since September 2010.

The US dollar surged against major currencies on Thursday after Bernanke signaled a possible cut of stimulus program later this year. In late New York trading, the euro dropped to $1.3196 from $1.3274 of the previous session and the British pound decreased to $1.5478 from $1.5486.

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