SCOREBOARD: Taper torn

Fed Chairman Ben Bernanke's QE taper talk spooked global markets, despite a string of positive US data.

It's sessions like we’ve seen over the last 24 hours where you really have to wonder about the sanity of the ‘talent’ that controls our investment dollars – cocaine frying their brains. Okay, that’s harsh – it’s all algorithms and stuff, I realise. But the moves are odd as it looks like a terrifying fear that the US economy is looking better than expected has gripped the market! Stronger growth, more employment, higher earnings – yep, very scary indeed.

So following the carnage in Asia yesterday, European and US stocks fell sharply as well. It was European stocks that underperformed for the session with the Dax off 3.3 per cent, the CaC off 3.7 per cent and the FTSE down nearly 3 per cent. All because the Fed is going to print money, but just a little bit less – maybe. Just nuts. TGIF.

I guess jitters wouldn’t have been helped by a surge in US home sales in May – oh, and the surge in the Philly Fed index. These figures were awful, people. Sales up 4.2 per cent to 5.2 million, which is pretty much on average. The Philly Fed index shot up to 12.5 from -5. There was no relief even from a modest lift in jobless claims to 354,000 from 336,000 in the week to June 15 – none!

So then US stocks sold off from the open and basically maintained a one-way trajectory for the session. At the close, the S&P500 fell 2.5 per cent (1588), the Dow lost 353 points (14,758) and the Nasdaq was down 2.2 per cent (3364). Not that it really matters on a night like last night, as every sector was smashed hard, but it seems that consumer goods were hit just that little bit more, down around 3 per cent or so. Nasty session and for the S&P it was the biggest fall since the panic of 2011 – the horror!

Otherwise, and as you’d expect, the belting delivered to commodities was no less harsh. Crude was down 2.9 per cent ($95.4), copper fell 2.8 per cent and gold was down $94 to $1279 – its weakest in over three years. Crazy moves, although some of it was currency driven. With the Fed not really doing much but possibly going to taper QE just a little bit, the US dollar has spiked! Having said that, moves weren’t huge last night, following big moves after the FOMC. The euro was down about 20 pips (1.3228), the British pound up 50 pips or more to 1.5516, while the Aussie peso fell about 40 pips to 0.92.

US Treasuries bounced around, the US 10-year yield trading within a 10 bps range from yesterday afternoon, but they only settled a few bps higher to 2.42 per cent. Still, that brings the weekly move so far to 24 bps – not insignificant.

Now, there was another piece of interesting news, timed perfectly with Ben Bernanke’s comments. The International Monetary Fund, not content with the market carnage to date, reportedly warned Greece that its aid may be suspended, unless a short-fall was filled in by eurozone lenders. “That's right, woodchuck-chuckers – it's... Groundhog Day!”

For our market today I guess the good news is that there is little scope for good news – the bad news is that the SPI was off another 1.7 per cent overnight. Not much in the way of data. Sure, there is a Chinese business sentiment indicator at 1135 AEST, but everyone seems convinced that the Chinese economy is either a bubble waiting to pop or that it’s extremely weak. Either way, China’s economy is bad, okay? And it won’t get better.

Otherwise, we see the eurozone current account and a UK budget update.

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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