Stocks fell off a cliff since the Fed confirmed fears that it
will taper off quantitative easing soon.
Federal Reserve Chairman Ben Bernanke told Congress that the Fed
could begin to scale back its $85 billion monthly diet of asset
purchases at one of the "next few meetings" of the Federal Open
Markets Committee as long as economic indicators continue to
improve. At the last FOMC meeting, "a number" of members said that
this could happen as early as June, but there is still no consensus
over when to start
This is exactly what fund managers and investors feared since US
and global equities took off early this year: that the whole rally
is dependent on the Fed's stimulus. It is likely that markets could
dive even further if labor market indicators continue to improve,
as it will be interpreted as a green light for the Fed to hit the
The move affected stock markets all over the world:
(INDEXNIKKE:.NI225), the hottest stock market in the world, fell
an impressive 7.32%, wiping out a chunk of the gains from a
weaker yen and government stimulus.
(INDEXEURO:PX1) dropped 2.36%.
- The German
(INDEXDB:DAX) fell 2.50%.
- The UK's
(INDEXFTSE:UKX) is down 1.73%.
Adding to the bloodbath this morning was a disappointing report on
manufacturing in China and Europe. The flash manufacturing PMI
estimate for China's manufacturing sector fell to 49.6 this month
from 50.4 in April. This is below the 50 threshold that separates
contraction from expansion. In Europe, manufacturing is still in
decline, but the pace they are falling at is slowing down. As a
whole, the euro currency union's flash PMI rose to 47.7 from 46.9.
Germany rose to 49, up from 48.1 last month and France gained one
point to 45.4.
One bright spot was intial jobless claims, which fell to 340,000
last week from a 363,000 spike in the week before. Economists
expected a fall to 345,000. The markets might react negatively,
however, since the improving economy bolsters the case for ending
Following yesterday's losses,
(INDEXDJX:.DJI) futures are down 0.77% at 15,202 before the opening
(INDEXSP:.INX) futures sank 0.93% to 1,640.20 and
(INDEXNASDAQ:.IXIC) futures fell 0.93% to 2,973.00. Gold futures
are up 1.47% at $1,387.50 per ounce.
Later to follow this morning is the US flash manufacturing PMI,
which is expected to fall 0.9 points to 51.2, as the sector's
growth slowed in May. Also on the economic calendar is the FHFA
home price index for March, which is expected to show a monthly
rise of 0.8%. A separate report is likely to show that new home
sales sped up in April to a seasonally adjusted annualized rate of
425,000 from 417,000 in March.
) shares rose 12.2% after beating expectations and reporting an
improved outlook. The tech company earned $0.87 per share, beating
estimates by a nickel, and raised guidance for the full year to
$3.50 to $3.60 per share.
) shares are up 1% in the premarket today ahead of their earnings
announcement this afternoon. The retailer is expected to report a
loss of $0.60 on $8.37 billion in revenue. Competitors such as
) have suffered recently due to the increase in the payroll tax
that subtracted from consumers' budgets.