Named Dread

In the first full session response to the US Federal Reserve’s “no change” decision European and US traders trashed shares on Friday night, leaving futures markets for the Asia Pacific region pointing south. The Fed’s highlighting of global weakness and laundry list of economic concerns have named investors’ most dreaded concerns while adding to uncertainty – a recipe for share market selling.

No change from the Fed is likely to lead to no change from markets. Constant speculation about potential central bank action, over-examination of economic data, a focus on growth negatives and sharp sentiment swings should see the nervous and volatile market conditions persist. Trading in Australia and the US last week was interrupted by major derivative expiries, which may have placed a dampener on overall volatility. This week may see volatility swing higher now that the distraction has passed.

A stronger USD is also undermining share market sentiment, as markets focus on this potential drag on US growth. A lack of major data releases today means there is no obvious circuit breaker to the negative momentum, and falling industrial commodities and rallying gold and bond markets could prompt selling throughout the trading day.