FTSE 100 falls to six-week low after Asia sell-off

FTSE 100 falls to six-week low after Asia sell-off
Published: 21 August 2013
London-The FTSE 100 fell to a six-week low on Tuesday, after Asian shares continued to slump amid concerns about the impact of an expected cut in US stimulus.

London's benchmark index fell as low as 6398.63 in early trade on Tuesday, its lowest since July 9, before recovering slightly to hover around 6408.73.

US stock index futures, however, signalled a steadier tone ahead on Wall Street - after major indices posted their longest losing streaks of the year on Tuesday - helping drag many markets off their lows.

Europe's main stock markets were down 0.8pc by midday, near a two-week low, while emerging stocks fell 1.3pc to trade at a five-week low, though both indices had recovered slightly during the morning session.

The selling has been triggered by rising expectations that the US Federal Reserve will start winding down its $85bn-a-month support programme next month.

The prospect has driven up bond market borrowing costs, which in turn has sparked a move away from the riskier assets that have soared over the last few years thanks to the extra liquidity.

The pressure is unlikely to be alleviated ahead of Wednesday's release of minutes from the most recent Fed meeting, which investors will be scouring for fresh hints on when the process may begin.

Emerging markets in Asia have borne the brunt of the jitters about the future of US stimulus, where the fear is that an end to cheap money and an improvement in the performance of advanced economies will reverse a flow of much-needed capital.

Indonesia and India, which require the inflows to fund balance of payments shortfalls, saw their stock markets fall 4pc and 1pc respectively, as their currencies continued to tumble.

Japan's Nikkei slumped too, falling 2.7pc, reflecting the exposure of many Japanese companies to India and Indonesia.

The rupee and Indonesia's rupiah as well the Thai baht saw some relief in European trading but Callum Henderson, head of FX research for Standard Chartered, said things may only settle down once the Fed's plans become clear.

"Our base case is that the Fed will announce the start of a modest and gradual tapering at its September meeting. By then it should be fully priced in, so it seems logical that we would see some degree of stabilisation," he said.

"If we also get a continued improvement in Chinese economic data then Asian currencies could find a more solid floor but for now having gained so much on the back of Fed QE from 2009 to 2012, some of that is being given back."

Ramin Nakisa, a global macro strategist for UBS in London, said market turbulence was bound to pick up further as the Fed starts to switch policy direction.

"We expect volatility... People will start to wonder whether there is anything in the fixed-income world that really is safe," he said, adding that there was also likely to be another short selloff in share markets.
- The Telegraph
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