Equity markets slump on uncertainty over tapering

Share Markets: 

Global equity markets ended the week on a lacklustre tone reflecting uncertainty about whether the Federal Reserve would begin tapering its asset purchase program this week.

Expectations that the Fed could make an announcement to taper when it meets this week have lifted in recent weeks, although the consensus view remains that the Fed will begin in March.

The Dow and Nasdaq managed to gain 0.1%, while the S&P500 was flat. Stocks in Europe weakened, with the Euro Stoxx down 0.2%.

Bonds:

US treasuries at the longer end strengthened, with yields on 10 and 30-year notes lower.

Weaker-than-expected price data reinforced expectations that inflation was subdued, which could give room for the Fed to delay tapering. 

In Europe, money market rates have risen, as the ECB reported that banks will repay €22.7bn in emergency loans this week that were given as response to the earlier crisis.

It would be the largest weekly amount since February. The repayment will result in a withdrawal of liquidity, and have driven up short-term interest rates, such as two-year German yields which hit a 3-month high.

Foreign Exchange:

Most major currencies were little changed over the session. The US dollar against a basket of currencies rose, but then retreated later on.

The Australian dollar held below 90 US cents, following a report released last week that said RBA Governor Stevens would prefer a currency closer to 85 cents. 

Commodities:

Weaker oil prices dragged the overall commodity price index lower, on concerns of higher inventories. However, copper prices hit a six-week high.

Meanwhile, gold prices rose around 1 per cent on Friday and for the week, but remains on a weakening trend. Any slowing of Federal Reserve stimulus will place downward pressure on gold.

New Zealand:

The ANZ measure of consumer confidence rose by 0.8% to 129.4 in December.

United Kingdom: 

UK construction output rose 2.2% in October, to be 5.3% higher than a year ago.

September's annual gain was revised up by 2.4 percentage points to 8.2% in the year, better reflective of the strength portrayed in the PMI survey from the construction sector for much of this year.

United States:

US producer prices fell 0.1% in November, the third straight month of decline.

Falls in energy and auto prices have been the main drivers keeping down producer price inflation.

The annual PPI was higher but still subdued at 0.7% in the year to November while the annual core PPI edged a tick lower to 1.3% in the year to November.



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