World shares tumble, gold sinks on Fed policy

Agence France-Presse

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Stock markets tumbles around the world and gold slumps to a 3-year low after the US Federal Reserve signals it may begin winding down its massive stimulus program

TUMBLING DOWN. A pedestrian walks in front of a share price board flashing the Tokyo Stock Exchange in Tokyo on June 20, 2013. World stocks fell after US Federal Reserve chairman Ben Bernanke said the bank could start reeling in its massive stimulus. Photo by AFP

LONDON, United Kingdom – Stock markets tumbled around the world on Thursday, June 20, and gold slumped to a 3-year low after the US Federal Reserve signaled it may begin winding down its massive stimulus program later this 2013.

Indications the Fed is looking to end its bond-buying policy by next year triggered a steep selloff in Asia with Europe and Wall Street following in turn.

At close, London’s benchmark FTSE 100 index plummeted 2.98% to end at 6,159.51 points, Frankfurt’s DAX 30 dived 3.28% to close at 7,928.48 points and in Paris the CAC 40 slumped 3.66% to finish at 3,698.93 points.

“In a classic case of perverse logic European markets were caught up in a vortex of selling today” after the announcement by the US Fed late Wednesday which was based on positive economic data for the US, said Michael Hewson, senior market analyst at CMC Markets UK.

“The sell-off was given added momentum by rising concerns of a credit crunch in China as well as a simply horrible manufacturing PMI print, as concerns about the trajectory of Chinese growth continued to build up,” he said.

Wall Street also fell sharply after booking stiff losses the previous day.

“There was a demonstrative judgement in the market that the Fed chairman didn’t give the market what it wanted,” said Patrick O’Hare of Briefing.com.

In midday trade, the Dow Jones Industrial Average shed 1.41% to 14,898.58 points, while the broad-based S&P 500 fell 1.55% to 1,603.61 points, and the tech-rich Nasdaq Composite Index tumbled 1.49% to 3,391.98 points.

On forex markets, the European single currency fell steeply to $1.3197, down from $1.3297 in New York late on Wednesday, June 19.

On the London Bullion Market, the price of gold tumbled as low as $1,286.20 an ounce — the precious metal striking a point last seen in September 2010. It later recovered somewhat to $1,292.50.

This fall hit mining shares in London particularly hard, where Fresnillo lost 8.1% to 960.5 pence and Randgold Resources lost 7.5% to 4,296 pence.

In Frankfurt, shares in export driven auto giants fell strongly. BMW dropped by 4.8% to 66.43 euros, Daimler by 4.6% to 44.58 euros and Volkswagen by 4.1% to 153.10 euros.

Eurozone bonds fell across the board, including safe-haven German government debt, pushing up interest rates. Yields on 10-year German bond, or Bunds, climbed to 1.67%, the highest level since February.

The Fed said on Wednesday that it would keep in place its $85-billion-a-month bond-buying program, which is known as quantitative easing (QE), as unemployment remains high and growth in the world’s top economy was being held back by government spending cuts.

However, in a news conference, Fed chairman Ben Bernanke said that the US central bank’s policy committee “currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year” if the economic outlook continued to improve and end it completely in mid-2014.

“Ben Bernanke has put the cat well and truly among the pigeons with his statement that asset purchases would begin slowing by the end of this year,” said analyst Yusuf Heusen at trading firm IG.

“It does feel as if the Fed chairman has pulled the rug from underneath the stock market rally, and he certainly seems to have dealt a killer blow to gold.”

Market turmoil

The signaled pullback in stimulus was brought on by an upgrade in the Fed’s assessment of the economic recovery, with unemployment now forecast to fall to 6.5% by the end of 2014.

The program had helped fuel a rally in equities since the Fed said in September it would provide vast sums of cash until the world’s biggest economy showed signs it was back up to strength.

Earlier Tokyo shed 1.74%, Hong Kong slumped 2.9% and Shanghai fell 2.77%.

Adding to selling pressure was preliminary data on Chinese manufacturing from HSBC, which showed activity contracted again in June and was at a 9-month low point.

The British banking giant HSBC said its preliminary purchasing managers’ index for China came in at 48.3, worse than May’s final reading of 49.2, and its lowest since September.

A reading below 50 indicates contraction, while anything above signals expansion. – Rappler.com

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