Market Update: Equities retreat as the Fed alludes to December taper – 31.10.2013

Source: Henderson Global Investors

On Wednesday, the US Federal Reserve (Fed) kept rates unchanged but alluded to the possibility of tapering asset purchases as early as December. The Fed also sounded less alarmed about the state of the US economy than markets had anticipated. This acted as a signal for markets to sell off. The Dow Jones index fell 0.4% and the S&P 500 snapped a four-day rally, dropping 0.5%. All 10 S&P 500 sectors declined and almost 70% of the stocks on the New York Stock Exchange and the Nasdaq retreated.

Unsurprisingly Asian markets also suffered overnight after the Fed’s latest policy outlook seemed less dovish than expected. In Japan, the Nikkei 225 fell 1.2%; but the damage was seemingly contained as the Bank of Japan raised its economic growth forecast for next year while emphasising their commitment to current stimulus policies. The market was also weak in China with the Shanghai Composite shedding 0.9%, where additionally earnings reports by major Chinese banks disappointed. The US dollar began to strengthen overnight, hovering near a two-week high against a basket of major currencies, as a result of the Fed news. Stocks are also down in European trading this morning. At the time of writing the FTSE Eurofirst 300 is down 0.2% while the FTSE 100 has lost 0.4%. Investors have a number of data releases to digest today including eurozone inflation, and German retail sales.