Tapering fears continue to hang over markets

It’s been a slow start to the week, with stock markets remaining paralysed by the fear of the unknown schedule for US QE tapering.

UK markets have at least had the benefit of being able to digest the weekend release from the Confederation of British Industry, which has raised its forecast for UK growth for this year and next.

Unfortunately the larger issue facing UK and European markets is the timing for when the US starts to taper its current quantitative easing policy. According to a survey conducted by Bloomberg this morning, institutional analysts believe that the Federal Reserve will reduce its $85 billion monthly debt purchase by $10 billion in September. Undoubtedly Fed chairman Ben Bernanke will be hoping that his persistent comments inferring an end to the current policy will have given traders and investors enough advanced warning to prevent panic.

Ahead of its figures released tomorrow, Glencore Xstrata are the second biggest faller in the FTSE 100, with the bottom five consisting of miners and oil producers. Commodity markets continue to offer traders the best area for volatility although with external political issues still driving the direction of oil it’s a difficult market to judge.

As a consequence of this morning’s CBI figures, the debt market has reacted and ten-year UK government debt is now yielding at its highest level in two years. With UK GDP figures due out later in the week, this market could well see further highs being set before the weekend.

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