World Markets Relax After Fed-Inspired Jolt

japan stock market bonds commodities ben bernanke federal reserve sell off
Itsuo Inouye/APAsian stock markets took a beating Friday, as investors remained edgy about the future of the U.S. Federal Reserve's stimulus program.
By PAN PYLAS

LONDON -- Financial markets settled down Friday after the turbulence caused by U.S. Federal Reserve Chairman Ben Bernanke's admission that the central bank may be done with its monetary stimulus next year.

On Wednesday, Bernanke said the Fed's bond purchases would likely slow down this year and end in 2014. That admission prompted widespread concerns among investors, who have grown used to the central bank's money-creation policies over the past few years.

The new money the Fed has created through its bond-buying program over nearly five years has been designed to shore up the U.S. economy. It has also been a major factor behind market developments. While stocks, U.S. Treasuries and emerging market currencies have gained ground, other assets such as the dollar have been undermined.

The prospect that the policy will be unwound sooner than many investors thought prompted big moves late Wednesday and Thursday despite U.S. economic data pointing to a solid recovery. Stocks, government bonds, in particular U.S. Treasuries, got hammered, while the dollar surged.


"There appears to be relative calm as markets open following a calamitous period since the Fed threatened to take away the steroids," said Mike McCudden, head of derivatives at Interactive Investor.

In European stock markets, the FTSE 100 index of leading British shares was up 0.5 percent at 6,192 while Germany's DAX rose 0.4 percent to 7,957. The CAC-40 in France was 0.8 percent higher at 3,729.

Wall Street was poised to recoup some of its losses over the past couple of days -- Dow futures were up 0.4 percent while the broader S&P 500 futures rose 0.5 percent.

The future of U.S. monetary policy isn't the sole focus of attention in financial markets despite the recent price action. Investors are also keeping a watchful eye on China amid signs that the world's number two economy is not growing as strongly as predicted.

"If markets had had only that to worry about then maybe the current sell-off mightn't have been so steep," said Michael Hewson, senior market analyst at CMC Markets. "Unfortunately when you put concerns about China into the mix as well it makes for a rather potent mix for risk aversion."

Fears over Greece have also resurfaced in recent days as concerns swell over the future of the coalition government that has been lauded, at least in financial circles, for the recent calm that has enveloped the most indebted country in the 17-country eurozone.

The latest concerns have arisen after one of the junior partners in the coalition, the Democratic Left, rejected a compromise deal over last week's surprise decision by conservative Prime Minister Antonis Samaras to close the public broadcaster. Though the other junior partner, socialist Pasok, accepted the deal, the future of the coalition government remains in question.

The International Monetary Fund has even hinted that it may delay its bailout payments to the country if pledged reforms aren't enacted.

As a result, the yield on the country's benchmark 10-year bond spiked 0.80 percentage point Friday to 11.35 percent. That's the highest in 2013.

Earlier in Asia, Japan's Nikkei 225, the region's biggest benchmark, bucked the losing trend in Asia, as the yen weakened against the dollar. That helps the country's exporters by making their products more price competitive abroad. The Nikkei rose 1.7 percent to close at 13,230.13.

Elsewhere, markets fell, but the retreats were relatively modest apart from in South Korea, where the KOSPI index shed 1.5 percent to close at 1,822.83. Hong Kong's Hang Seng index dropped 0.6 percent to 20,263.31 while the benchmark Shanghai index fell 0.5 percent to 2,169.70.

In other markets, trading was also largely calmer. Among currencies, the euro was 0.1 percent lower at $1.3214. However the dollar remained firm against the yen, trading 0.7 percent higher at 97.62 yen.

Commodities were also steadier after Thursday's big falls in the prices of oil and gold, which, among other factors, got hit hard because they are priced in dollars among others. The benchmark New York oil price was 62 cents higher at $95.77 a barrel while an ounce of gold rose 0.6 percent to $1.293.

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Eileen Ng in Kuala Lumpur, Malaysia contributed to this report.


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Hannah Godfrey

It’s the calm before the storm. Gold and silver were back at the 2010 level http://bit.ly/19Y179R when the recent FOMC decisions gave out hints of curtailing the bond purchase program. This is sure to cause roil across the markets. Traders and investors have been in a cautious mode till the Fed’s meeting. The market’s reactions are yet to surface in the following trading sessions.

June 21 2013 at 8:19 AM Report abuse +1 rate up rate down Reply
jdykbpl45

Bernake had to cover his shorts.

June 21 2013 at 7:18 AM Report abuse +1 rate up rate down Reply