Bernanke comments trigger global sell-off

As we enter the close, the FTSE 100 has plundered the key 6200 support level and is trading down 3% on the day.

European markets

Given that the UK benchmark has given up what was recently a ‘buy on the dips’ level, any relief rally will run into trouble at what is now probable resistance. The big question now is whether we are in for a watershed moment in equities. Investors have spent May scanning anxiously for signs that the rally is over, but Federal Reserve chairman Ben Bernanke may just have fired the starting pistol on a wave of selling that might go on for weeks. Today’s market action was like a day out at Alton Towers only with more spills than thrills and a plethora of nauseating effects. Stocks in the green were few and far between with only Lloyds Banking Group managing to hold firm on the day (and only barely) as plans to return the bank into private hands get underway.

All the PMI numbers in Europe was slightly better-than-expected, but getting worse more slowly is still a bad sign. With headline indices below the pivotal 50 level, one can expect that the recession will continue for now. mining sector, already under fire as base and precious metals sold off on the stronger US dollar, were subjected to additional pressure on news that Chinese factory activity had failed to meet expectations. Polymetal International lost 10.5%, while Mexican silver miner, Fresnillo, saw shares decline by 7.4%. The FTSE 350 mining index has now lost almost 30% of its value since hitting its highs of February this year, putting it resolutely into bear market territory.

US markets

Stateside, much of the economic data releases seemed to add weight to the Fed’s decision to plan a taper back in asset purchases. Manufacturing in the Philadelphia region smashed expectations in rising to its highest level since April 2011, climbing to 12.5 from -5.2 in May. Existing homes sales also climbed more than forecast and boosted what has become a very robust section of the US economy further, which can only help confidence. Purchases of existing houses increased 4.2% to an annualised rate of 5.18 million from 4.97 million in April. The Dow Jones is presently trading at 14,907; 204 points weaker on the day.


Much of today’s market action can be laid directly at the feet of the Fed’s Ben Bernanke and the story was no different in the currency crosses. The dollar is king and the surging dollar index rising above the 82.00 level indicated that much of the safe-haven capital flow was genuflecting in its direction. The yen, owing little to any domestic monetary policy, weakened and at one stage rose above Y98 against the dollar. The euro, having recently hit four-month highs, has Mr Bernanke to thank for the decline. Given that the eurozone is expecting to export its way out of recession and the distinct lack of monetary tools left to the ECB, one could say that the pullback below the $1.32 level can only be a positive event.


The pain for goldbugs goes on as the  yellow metal slumps below $1300. We are now in territory not seen since late 2010, but it would take a brave person to suggest that the selling will abate any time soon. The key level now is $1286/oz and should we see a failure to hold then the prospect of a return to March 2010 around $1080 cannot be ruled out. copper was another casualty,as prospects of stagnating growth in China and the stronger greenback curbed any future demand outlook. The price fell to $3.04/lb, levels not seen since October 2011.

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