Market update: Fed tapering talk returns – 21.11.2013

Source: Henderson Global Investors

US stocks fell for a third session and Treasury yields rose (prices fell) on Wednesday. The release of the latest Federal Reserve (Fed) meeting minutes showed that central bankers expect that economic data will improve to support a withdrawal of asset purchases in the coming months. Meanwhile, October retail sales rose by 0.4% compared with a 0.1% fall in September, according to the US Commerce Department. The federal government shutdown in October appeared to have had less of an impact on consumers than feared; the Labor Department’s gauge of core consumer prices showed a 0.1% rise. Both the S&P 500 and the Dow Jones fell 0.4%, while the Nasdaq was down 0.3%.

Overnight Asian shares closed weaker. Supporting a still cautiously optimistic view on China's economy, the initial estimate of the HSBC China manufacturing Purchasing Managers’ Index reported the first month-on-month drop in four months, falling to 50.4 from October's 50.9 reading (a reading of above 50 indicates sector expansion) as new export orders shrank. The Shanghai Composite closed broadly flat and the Hang Seng lost 0.5%. Conversely, Japanese equities firmed, ending the day up 1.9%. The Bank of Japan maintained its commitment to accommodative monetary policy and reiterated that the economy is in moderate recovery mode.

European stocks are down at the time of writing (FTSE Eurofirst 300 -0.4%, FTSE 100 -0.1%), with financials bearing the brunt of market weakness. Market sentiment is being affected by the Fed’s hawkish comments on the economy, which have reignited tapering talks in the markets, as well as the weaker-than-expected Chinese manufacturing data.