Investments  

Stocks dip ahead of Fed tapering meeting

Stocks in Asia have dipped as the market prepares for the Federal Reserve to unveil how it will reduce the size of its asset purchase programme.

The Federal Reserve will meet today and tomorrow to discuss how it will reduce the amount of bonds it buys as part of its $85bn (£53.3bn) per month quantitative easing programme.

Markets rallied slightly yesterday when it emerged Lawrence Summers had removed himself from the race to replace Fed chairman Ben Bernanke when he steps down in January.

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But markets have softened with the Shangai Composite index down more than 2 per cent with some consolidation this morning as the FTSE 100 is down nearly 0.4 per cent and the FTSE Eurofirst 300 index down nearly more than 0.4 per cent.

Trevor Greetham, director of asset allocation at Fidelity, said it “makes sense” for the Fed to reduce its quantitative easing programme.

“Quantitative easing is a crisis fighting tool useful when interest rates are already close to their zero lower bound,” he said.

“Indeed, outside of Japan and Switzerland, the rest of the world has already stopped printing money, abruptly, with no fanfare and no obvious damage to the economy or financial markets.”

Mr Greetham said he expected equities to come through the process of normalisation in monetary policy stronger than bonds.

“Stocks never factored in the artificially low level central banks drove bond yields to and valuations are reasonable,” he said.

“Meanwhile, a broadening pick up in global growth should continue to boost corporate earnings.”