Friday, 21 June 2013

Markets fall on Fed taper and China concerns

Markets tumbled around the world on Thursday following the Fed's announcement of a likely tapering of bond purchases the previous day as well as concerns over China.

The MSCI All-Country World Index fell 3.4 percent on Thursday. The S&P 500 declined 2.5 percent. The declines were even bigger in Asia, where stocks plunged 4.1 percent, and Europe, where stocks fell 3 percent.

Government bonds around the world also fell on Thursday. The US 10-year Treasury yield rose six basis points to 2.41 percent. German bund yields rose 12 basis points to 1.68 percent.

In China, interbank rates surged on Thursday. The benchmark weighted-average seven-day bond repurchase rate jumped 380 basis points to a record high of 12.06 percent while the overnight repo rate surged 598 bps to 13.85 percent.

That was not the only bad news from China on Thursday. A report from HSBC showed that its manufacturing PMI for China fell to 48.3 in June from 49.2 in May.

Other economic data on Thursday were not as bad though.

In the US, manufacturing activity growth slowed only slightly in June as Markit's flash PMI reading fell to 52.2 from 52.3 in May.

US economic growth is likely to be sustained. The Conference Board's US leading economic index increased 0.1 percent in May to hit 95.2, its highest level since June 2008.

Helping US economic growth is a recovering housing market. US existing home sales rose 4.2 percent in May to the highest level since November 2009. Inventories fell to 5.1 months of sales from 5.2 in April.

Meanwhile, Europe's recession may be abating. Markit's composite index based on a survey of purchasing managers rose to 48.9 in June, the highest in 15 months, from 47.7 in May. The index for services rose to 48.6 from 47.2 while the index for manufacturing increased to 48.7 this month from 48.3 in May.

Consumer confidence in the euro area has also improved. The European Commission's consumer confidence index for the region rose to -18.8 in June from -21.9 in May.

The UK economy also appears to be improving. The Confederation of British Industry's total order book balance rose to -18 in June from -20 in May while retail sales rose 2.1 percent in May.

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