European Markets Down on US Monetary Stimulus Taper Worries

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By m rochan | December 12, 2013 8:08 PM EST

European markets trade lower on 12 December (Reuters).

European markets opened lower on 12 December, and traded to the downside thereafter, on fears that the US Federal Reserve could unwind its monetary stimulus programme sooner than expected.

The Stoxx Europe 600 index opened 0.3% lower to 312.28.

Britain's FTSE 100 opened 0.4% lower.

France's CAC 40 opened 0.2% lower.

Germany's DAX opened 0.5% lower.

Spain's IBEX 35 was trading 0.52% lower after opening lower.

Italy's FTSE MIB was trading 0.68% lower after opening lower.

The Fed's $85-bn-a-month bond buying programme has supported the world's leading economy and the markets the world over.

Market participants now fear that the provisional two-year deal to prevent another US shutdown could prompt the Fed to trim its bond buys as early as next week. The Fed will announce its monetary policy decision on 18 December.

Standard Chartered said in a note to clients: "Since June financial conditions are much looser, with stocks higher, credit spreads tighter, volatility lower and US economic data stronger, suggesting ample scope for the Fed taper. Meanwhile, the news that US policy makers reached a 2-year budget deal is helping to boost the dollar. Notably, one of key factors keeping the Fed in wait-and-see mode was the potential economic drag from tighter fiscal policy".

"With a Senate vote expected as early as next week and concerns about a government shutdown removed, we think the odds of a December have risen. We expect the Fed to taper in January but it appears likely that at the very least the Fed will use the December meeting to lay the groundwork for a January taper", the British bank added. 

Market participants will be tracking the Eurozone monthly report, due out at 09:00GMT. They will also be tracking Eurozone-wide industrial production data for the month of October, expected at 10:00GMT.

Credit Agricole CIB said in a note to clients: "Eurozone industrial production likely contracted in October, setting a weak start to Q4. We have updated our estimate to -0.7% MoM after the disappointing German and French figures released earlier this week. German IP fell by 1.2% MoM, French IP was also negative at -0.3% MoM".

"Contrasting with hard data, the Eurozone PMI manufacturing improved for the third consecutive month to a still weak level, suggesting growth is rising at a quarterly rate of 0.6% in Q4 with clear dispersion across countries", the French bank added.

Italy put out inflation data at 09:00GMT. Meanwhile, France's EU harmonized inflation moved up 0.8% in November on an annual basis, matching expectations.

Market players will also be tracking US retail sales figures, expected later in the day. The data would throw more light on the health of the American economy.

Credit Agricole CIB said in a separate note to clients: "We expect US retail sales growth to have accelerated to 0.6% m/m in November, after 0.4% in October, driven by the strongest monthly auto sales (16.3mn SAAR) since June 2007. By contrast, core retail sales (excluding autos and gasoline) likely increased modestly, as reflected by the slowing pace of chain store-sales through November".

"Deep holiday discounting by auto makers and improved financing conditions boosted car sales, offsetting relatively soft holiday department store shopping. If retail sales were stronger in November as we expect, this could signal a rebound in real consumer spending in Q4, after a four-year-low of 1.4% q/q real GDP consumption growth in Q3", the French bank added. 

Earlier, in Italy, Prime Minister Enrico Letta called for a "new start" and promised economic and political reforms, after surviving a vote of confidence.  

In Asia

The Japanese Nikkei finished 1.12% lower on 12 December.

Australia's S&P/ASX finished 0.82% lower, South Korea's Kospi finished 0.51% lower and the Shanghai Composite ended 0.06% lower.

Markets slid to two-and-a-half month lows on 12 December, pulled down by Fed fears.

In India, market players await inflation data for the month of November alongside factory output data for the month of October.

In South Korea, the Bank of Korea left its base rate unchanged at 2.5%, as was widely expected.

In New Zealand, the Reserve Bank of New Zealand left its cash rate unchanged at 2.5%. However, the central bank reiterated it expects to raise rates in 2014 to deal with rising inflation pressures from the housing and building sectors.

On Wall Street

On Wall Street, indices ended lower on 11 December on Fed QE jitters.

The Dow finished 129.60 points, or 0.81%, lower at 15,843.53.

The S&P 500 closed 20.40 points, or 1.13%, lower at 1,782.22.

The Nasdaq ended 56.68 points, or 1.40%, lower at 4,003.81.

The CBOE Volatility Index (VIX), broadly regarded as the best gauge of fear in the market, spiked above 15.

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