All of the major European indices are off by more than 2% in the first few hours of trading today. As was broadly anticipated, the Fed are looking to reduce and ultimately end the quantitative easing (QE) policy that they have been running for the last few years. The constant flow of cash that this has been pumped into the markets has found its way into the equity markets, and share traders are naturally concerned about the end of this steady supply of support.
Looking at this from an analytical perspective, we should remember that equities is the most attractive asset class available to fund managers. At this point in time an end to QE will not be good for equities, but they will still remain attractive for their income returns even if their capital gains are a little less certain.
As the US is further down the road of recovery and in a better place to handle these issues, European traders will be looking towards their US counterparts to bring a calming influence to the last few days of trading this week.