European Markets Drop As Upbeat US Data Fuels Fed Reserve QE Taper Fears

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By m rochan | December 3, 2013 9:32 PM EST

European markets trade lower on 3 December (Reuters).

European markets witnessed mixed trade in the opening minutes on 3 December, and traded to the downside thereafter, as upbeat US factory activity data fuelled US Federal Reserve QE taper fears.

The Stoxx Europe 600 index opened flat to 324.11.

Britain's FTSE 100 opened 0.2% lower.

France's CAC 40 opened 0.3% lower.

Germany's DAX 30 opened flat.

Spain's IBEX 35 was trading 0.73% lower after opening flat.

Italy's FTSE MIB was trading 0.19% lower after opening higher.

Data from the US showed that the nation's manufacturing sector expanded at its fastest pace in two-and-a-half-years in November, while the pace of hiring in the sector gained momentum.

The Institute for Supply Management (ISM) said its index of national factory activity rose to 57.3 in November, from 56.4 in the preceding month.

That data sparked fears that the Fed could start winding down its $85bn-a-month bond buying stimulus sooner than later. The Fed will announce its monetary policy decision on 18 December.

Market players now await the release of US third-quarter GDP data and the non-farm payrolls numbers later in the week.

Capital Economics said in a note to clients: "The unexpected increase in the US ISM manufacturing index to a two-and-a-half year high of 57.3 in November, from 56.4, suggests that activity is receiving a boost from both stronger domestic and overseas demand."

"At this level, the headline ISM index points to robust fourth-quarter GDP growth of 3.5% annualised. Actual growth will probably be little more than 2%, but this latest survey provides the Fed with further evidence that the economic outlook is improving".

"Obviously, the Fed is more focused on the labour market data specifically but, at the margin, this is more evidence [in] favour of an earlier taper", Capital Economics added.

Meanwhile, an official Chinese newspaper derided Britain as "just an old European country apt for travel and study", just as Prime Minister David Cameron continued the second leg of his China tour. The stinging editorial "China won't fall for Cameron's 'sincerity'" expressed outrage over the British premier's meeting with the Tibetan spiritual leader-in-exile Dalai Lama, who China sees as a separatist.

In company news, the Royal Bank of Scotland said it would compensate customers who were affected by the mass outage to its online and phone banking services which has potentially left millions of people unable to purchase goods or receive payments.

British bookmaker Betfair's stock was trading 2.76% higher at 09:14 hrs GMT in London after the firm said it proposes to expand in Italy and the US after reporting a 16% increase in half-yearly underlying profit.

Insulin maker Novo Nordisk's stock gained 2.29% in early Copenhagen trading after the firm announced that its R&D pipeline was now in better shape that it had ever been.

In Asia

The Shanghai Composite finished 0.69% higher on 3 December, while the Japanese Nikkei finished 0.60% higher.

Australia's S&P/ASX finished 0.44% lower, Hong Kong's Hang Seng finished 0.53% lower and South Korea's Kospi finished 1.05% lower

Mumbai's BSE Sensex was trading 0.29% lower.

Japanese equities finished at a six-year high on the back of supportive comments from Bank of Japan Governor Haruhiko Kuroda.

Kuroda sparked speculation of an increase in the central bank's $70 billion-a-month bond-buying stimulus after he said: "We are ready to adjust monetary policy without hesitation if risks materialise."

Elsewhere in Asia, most indices traded lower amid fears of a reduction in Fed stimulus.

In Bangkok, anti-government protesters declared victory against Thai Prime Minister Yingluck Shinawatra after authorities removed barricades around the police compound in Bangkok, allowing access to the demonstrators.

Protesters were seen shouting slogans against the government announcing their moral triumph as part of their campaign to dislodge Yingluck.

Meanwhile, in Sydney, the Reserve Bank of Australia (RBA) left its cash rate unchanged at a record low 2.5%.

Market players also took in mixed economic data - Australia's current account deficit widened in the July-September quarter from the preceding quarter, while October retail sales beat estimates.

The Australian dollar shed 0.4% to $0.9062 against the greenback after RBA Governor Glenn Stevens said the currency remained "uncomfortably high."

"The Australian dollar, while below its level earlier in the year, is still uncomfortably high. A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy", Stevens said in a statement.

Wall Street Down

On Wall Street, indices ended lower on 2 December as market participants exercised caution ahead of the release of key economic data in the US.

The Dow finished 77.64 points lower or 0.5% at 16,008.77.

The S&P 500 closed 4.91 points lower or 0.3% at 1,800.90.

The Nasdaq ended 14.63 points lower or 0.4% at 4,045.26.

Tim Radford, global analyst at Rivkin Securities said in a note to clients: "A late session selloff saw US stocks dip into negative territory in another quiet trading session".

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