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GLOBAL MARKETS-Stocks, bonds, commodities slump on likely end to Fed stimulus
June 20, 2013 / 4:18 PM / 4 years ago

GLOBAL MARKETS-Stocks, bonds, commodities slump on likely end to Fed stimulus

* Clear signal of Fed tapering sparks global asset selloff

* MSCI world markets index drops 3.0 pct in biggest 1-day fall in 19 months

* Weak China data add to global growth concerns

* Oil, gold, copper slump as U.S. dollar gains

By Herbert Lash

NEW YORK, June 20 (Reuters) - Global equity markets, bond prices and commodities fell sharply on Thursday, a day after the Federal Reserve said the U.S. economy was growing strongly enough for it to begin slowing its unprecedented stimulus.

That stimulus has supported both the U.S. economy and world financial markets by pushing interest rates to historic lows.

Markets have rallied as investors have sought riskier assets. But Federal Reserve Chairman Ben Bernanke’s statement on Wednesday laying out a likely end to the program by next year, if the economy continues to strengthen, brought a dose of finality to the markets.

“They have begun to think about removing accommodation, as opposed to a one-way message that appeared to the market of accommodation as far as the eye can see,” said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.

The U.S. dollar rallied further against the euro and yen after the stronger-than-expected readings on business activity in the United States supported the Fed’s view of diminished downside risks to the economic outlook.

The economic data added to investors’ fears that the era of easy money would soon wane.

Home resales jumped to their highest level in 3-1/2 years in May and factory activity in June in the U.S. mid-Atlantic region rebounded to its highest level in more than two years.

Equities on Wall Street fell more than 1.5 percent while stocks in Europe dropped almost 3.0 percent. Government debt prices fell, with yields on the 10-year U.S. Treasury note rising to 2.41 percent, a level last seen almost two years ago.

Gordon Charlop, managing director at Rosenblatt Securities in New York, said the pullback was “somewhat inevitable.”

“The flow up to this point has not been disorderly. It’s been a reasonably measured selloff,” Charlop said.

MSCI’s benchmark index for emerging equities slumped 4.04 percent and shares across the Asian Pacific region outside Japan recorded their biggest daily drop since late 2011. The index fell 3.87 percent.

MSCI’s all-country world index fell 3.03 percent, its largest single-day drop in 19 months, representing approximately $1 trillion in market value. The pan-European FTSEurofirst 300 index of leading regional shares fell 2.88 percent to close down at a provisional 1,146.22.

On Wall Street, the Dow Jones industrial average was down 179.86 points, or 1.19 percent, at 14,932.33. The Standard & Poor’s 500 Index was down 21.79 points, or 1.34 percent, at 1,607.14. The Nasdaq Composite Index was down 47.98 points, or 1.39 percent, at 3,395.22.

Bernanke’s comments were more hawkish than some had expected and promoted broad selling across bonds, with five- and seven-year notes suffering the most.

The benchmark 10-year U.S. Treasury note was down 13/32 in price to yield 2.4006 percent.

The U.S. dollar rallied to two-week highs against major currencies, and looked set to extend gains

The euro fell to a session low of $1.3162, a two-week low. It was last at $1.3203, down 0.68 percent on the day.

The U.S. dollar rose 1.69 percent to 98.09 yen.

Oil fell $3 a barrel while gold prices tumbled to their lowest in more than 2-1/2 years and silver fell more than 6 percent as markets reacted to Bernanke’s comments and a drop in Chinese factory activity to a nine-month low.

Emerging markets, many of which have been primed by the cheap Fed cash, took some of the biggest selling as investors rushed to the exits.

Factory output in China, the world’s second-largest economy, weakened to a nine-month low in June, combining with a continued recession in the euro zone to threaten a global recovery led by the United States.

A day after the Federal Reserve suggested the U.S. economy was firmly on a recovery path - enough so to withdraw some monetary stimulus - data showed China’s economy was stuttering.

Faltering demand pushed the flash China HSBC Purchasing Managers Index down to 48.3 in June from 49.2, increasing pressure on the People’s Bank of China to loosen the monetary reins.

Meanwhile, Markit’s Flash Eurozone Composite PMI, which makes up around 85 percent of the final reading and is seen as a reliable economic growth indicator for the bloc, remained below the dividing line between growth and contraction.

It did, however, rise to 48.9 in June from May’s 47.7, suggesting the decay has eased across the 17-nation bloc.

China’s economy grew at its slowest pace for 13 years in 2012 and data so far this year has been weaker than forecast, bringing warnings the country could miss its 7.5 percent growth target, though possibly not by much.

Crude oil prices also took a hit from a surprise increase in U.S. crude inventories, even in the midst of the summer driving season, when demand for gasoline rises. Stocks rose by over 300,000 barrels, in contrast to the 500,000 barrel drop analysts forecast.

Brent crude was down $3.28 to $102.84 a barrel, while U.S. oil declined $2.88 to $95.36.

Spot gold prices fell $55.43 to $1,295.20 an ounce.

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