Market update: Fed minutes trigger widespread sell-down

It was a reversal of fortunes for the S&P 500 Index yesterday, which suffered its worst day in more than three months (-1.2%; Dow Jones -0.8%; Nasdaq -1.5%). At the same time, the CBOE Volatility Index, the markets’ so-called fear gauge, jumped 19.3%. The trigger for the risk sell-down was the release of minutes from the Federal Reserve’s January meeting, which revealed that “many” officials were concerned about the costs and risks of further asset purchases, currently US$85bn per month. Markets interpreted their comments to mean that the US’ third round of quantitative easing (QE3) could be ended or tapered earlier than previously thought. In contrast, UK Monetary Policy Committee minutes showed Sir Mervyn King and two others had voted for more QE, which resulted in the pound sliding against the dollar and the euro.
 
Unsurprisingly, European markets have pulled back sharply this morning (FTSE 100 -1.4%; FTSE Eurofirst 300 -1.2%), with investors chewing over yesterday’s news. At the sector level, mining stocks and financials are notable underperformers. In company news, defence firm BAE Systems is on the rise after announcing a three-year share repurchase programme of up to £1bn and increasing its 2012 dividend. Looking at today’s scheduled releases, eurozone purchasing managers’ indices, UK public-sector finances, US jobless claims and the Philadelphia Fed survey will make for a busy day.