Market Update: Plenum anticlimax and debate over Fed tapering scales back risk appetite – 13.11.2013

Source: Henderson Global Investors

Diverging views by Federal Reserve (Fed) officials on the outlook for easing monetary policy in the US led to more uncertainty in the markets on Tuesday, sapping risk appetite. Markets were mostly lower: stocks fell (S&P 500 and Dow Jones both down 0.2%) and benchmark Treasury yields rose as investors speculated that the Fed will make its move sooner rather than later. The financial, energy and utility sectors within the S&P 500 led the declines.

Asian markets were mostly lower in overnight trading on US tapering concerns, which put pressure on emerging market assets, together with the Chinese government’s vague communique released at the conclusion of their third plenum meeting. While there were promises of wide-ranging market-based reforms, the lack of detail disappointed the markets. Asian currencies were battered, led by the Indonesian rupiah falling to its weakest level against the US dollar in four and a half years, while the Jakarta stock market fell 2.1%.

The dour mood of the US and Asian markets has rolled into European trading this morning. At the time of writing the FTSE Eurofirst 300 and the FTSE 100 had retreated 0.6% and 0.8% respectively. In London, investors have scaled back their appetite for risk ahead of the Bank of England’s inflation report due today. European investors are weighing corporate earnings whilst awaiting data for the 17-nation euro area’s industrial output (expected to have slipped).