The FTSE 100 reached its lowest level in five months following comments from the US Federal Reserve chairman Ben Bernanke’s comments that it would reduce its liquidity injections into the economy.
Asian equities and gold suffered the most, with the metal at its lowest level for two and a half years at $1,287.6 a troy ounce, while the FTSE was down nearly 3.1 per cent to 6,152.6 earlier today- the lowest since January.
Meanwhile, Treasury yields are rising as investors sell US Treasuries ahead of any tapering of the Fed’s $85bn per month programme.
Markets have plunged since Fed chairman Ben Bernanke told Congress yesterday that it would be “appropriate to moderate the monthly pace of purchases later this year” if economic growth remained healthy.
Recently, positive data releases have been met with falling equity markets as investors fear this will be evidence for the Fed that the economy no longer needs support through money printing.
“These moves offer a roadmap for the exit from QE and so provide some clarity to the markets,” Keith Wade, chief economist at Schroders, said.
“Strong growth would now be seen as bad news by bringing forward tapering, but the Fed will be aware that significant increases in bond yields will hit the recovery through higher mortgage rates.
“Weaker equity markets could also slow activity by reversing wealth effects. On the positive side investors should have increased confidence in recovery, but the immediate focus will be on the unwinding of liquidity trades.”
