June 13th 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist
A rout across global stock markets on heightened fears that global central banks will halt/moderate liquidity measures forces investors to dump risky assets. US stocks fell overnight on these worries and Japan's Nikkei 225 index slumped 6.4% into bear-market territory, pushing the yen higher against the US dollar.
An ugly start for European stock markets which are on course to book a fourth straight day of losses. Risk aversion dominates with a flight into core government bond such as German bunds out of equities, currencies like the euro and commodity linked currencies, emerging markets and commodities. Additionally, investors have been rattled by the recent developments in Greece as the country failed to dispose of a big ticket asset, switched off state-TV in what was seen as an austerity drive and had its status cut to emerging market from developed market by MSCI.
Global equities are now off over 5% or around $2.5 trillion from May 22 when Fed head Bernanke said the central bank could reduce the pace of QE. The realisation that global central banks are unwilling to pump more liquidity is exacerbated by fears over a global slowdown. The long-awaited sell-off in global markets is finally here after the stellar performances of equities in the first quarter of the year. This selloff most certainly has momentum as there seems little to suggest that the Fed will not taper stimulus and the ECB has demonstrated greater unwillingness to respond with measures to stimulate the euro zone and the BOJ stood firm on not adding more QE on Tuesday.
Furthermore, the World Bank yesterday cut global growth forecasts on those exact fears of limited liquidity in the system. The World Bank now expects the global economy to expand 2.2% in 2013 from 2.4% forecasted earlier this year. Slowing global growth fears and reduced liquidity have led to an aggressive selloff in emerging markets too. EM currencies and markets [regarded as high risk/high return] have experienced a massive flight of capital outflows and there seems little to indicate this trend will ease in forthcoming weeks as investors pull out cash and park in less riskier investments.
There's little on today's economic calendar out of Europe with market participants focusing on the torrent of US economic data to provide clues over the Fed's next move which is scheduled for next Wednesday. We have retail sales, import prices, weekly jobless claims and business inventories all due later in the session.
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