Asian markets have all traded lower today, with the biggest losses seen coming from the Nikkei, tumbling 4 per cent, and our market, down over 1.8 per cent. Both regions posted their biggest one day losses in over a month.
Economic news over the past week out of the US, Europe and the UK has been positive, indicating gradual growth and beating initial estimates. The problem is that equity markets are concerned the good news will result in the Federal Reserve cutting back on their drug of choice, the $85 billion a month bond-buying program.
This week, notable economic news out of the US included stronger growth in the services industries, which initially kicked off speculation the Fed would have capacity to be able to reduce stimulus.
Adding weight to this was the Supply Management’s non-manufacturing index also rising overnight, beating the consensus estimates.
With the Federal Reserve on the edge of slowing down their economic-stimulating bond purchases, equity markets are jittery.
It should be expected a reduction in the bond-buying program, or any aggressive monetary policy will impact equity markets over the short-term. However, the implications are much more supportive for sustainable growth over the long-term.
Fed Chairman Ben Bernanke mentioned in a speech in June the Fed could pull back on their current bond-buying program by the end of this year. Confirmation the US economy is experiencing growth has seen September firm as the month the Fed might begin to wind back the program. This would appear to be sooner than market players had anticipated.