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Ben Bernanke has put the cat well and truly among the pigeons with his statement that asset purchases would begin slowing by the end of this year. It does feel as if the Fed chairman has pulled the rug from underneath the stock market rally, and he certainly seems to have dealt a killer blow to gold. Mr Bernanke might have said that the Fed wasn’t looking to apply the brakes on easing, but he certainly had that effect on stocks. The US economy might be getting better but this will be cold comfort for investors today. Until the dust settles, it is hard to say where the latest bout of selling will end.
It never rains but it pours. Chinese factory figures showed that activity was down to a nine-month low in June, adding to the gloomy atmosphere. Mining stocks, keenly attuned to global prospects, were hit hard by the news, with precious metal producers hit by the $40 drop in gold prices during the morning session. Leading the way lower was Randgold Resources, which is now challenging the lows last seen in mid-April. Curiously, investors have been more sanguine about Lloyds Banking Group, which is down only 0.6%, after the chancellor’s surprise announcement that the government will begin the process of returning the bank to private ownership.
After the Fed comes a torrent of data. Jobless claims, a Markit PMI reading, existing home sales, leading indicators and the Philadelphia Fed index are all on the list today. This will keep market watchers busy, but the Fed meeting will still tower above all else. Now we know that the Fed will cut back on easing, traders will be trying to work out when this process is expected to begin. Ahead of the open, we expect the Dow to start down 90 points at 15,020.