* Clear signal of Fed tapering sparks global asset selloff
* MSCI World drops 1.9 pct in biggest 1-day fall for 12
* Weak China data added to global growth concerns
* Oil, gold, copper slump as dollar gains
By Richard Hubbard
LONDON, June 20 The clear signal from the U.S.
Federal Reserve that it will soon stop pumping money into the
global economy and data pointing to Chinese growth slowing
sparked sharp falls in bonds, shares and commodities on
Emerging markets, many of which have been primed by the
cheap Fed cash, saw some of the biggest selling as investors
rushed to the exits.
MSCI's benchmark index for emerging equities
slumped by more than 3.3 percent and shares across the Asian
Pacific region outside Japan recorded their
biggest daily drop since late 2011.
World stocks in general saw the largest
one-day drop for 12 months, falling 1.9 percent with U.S. stock
futures pointing to further losses when Wall Street opens.
Reflecting the broad swathe of reaction, South African
10-year yields spiked almost a half percentage point, the
biggest one day rise in 10 years.
The initial catalyst for the selloff was Fed Chairman Ben
Bernanke's surprisingly strong commitment to end the central
bank's asset-buying by the middle of 2014. That sent 10-year
U.S. Treasury note yields to 15-month highs.
"Bernanke came across as being quite clear and I think
people were hoping for a less clear cut path to higher rates and
that came as a little bit of shock," said Luca Jellinek, head of
European interest-rate strategy at Credit Agricole.
The jump in T-note yields to a high of 2.45 percent lifted
the dollar against a broad range of currencies by 0.7
percent. Against the yen, the greenback gained around 1.6
percent to 98 yen.
The Fed's $85 billion of monthly bond purchases has helped
keep the world awash in investment cash as it has struggled with
a severe economic downturn.
But Bernanke's commitment to begin cutting back on the
spending before the end of this year and end it in 2014 if the
economy keeps improving makes the outlook for financial markets
more uncertain. This comes despite the fact that the move is
motivated by expectations of a more robust U.S. economy.
"We see (Bernanke's statement) as a good sign in the
long-term as it shows that a return to normal monetary policy is
in the offing, that economic growth is picking up," said James
Humphreys, senior investment manager at Duncan Lawrie Private
However, in the near term such a policy shift in the face of
low inflation and a still modest growth was seen likely to make
investors more risk adverse until the situation became clearer.
"We suspect that (the Fed) has made a policy mistake. We do
not believe that growth is as robust as the way the Fed has
characterised it, and we don't believe that inflation will pick
up to the degree that the Fed expects," Gary Dugan, chief
investment officer for Asia and the Middle East at Coutts.
The shift out of riskier assets gained added momentum from a
survey of China's factories released earlier on Wednesday,
showing activity at a nine-month low just as a squeeze in the
nation's money markets sent short term rates to record highs.
The stress this caused investors was clear in the Asian
credit markets, where the spread on the iTraxx Asia ex-Japan
investment-grade index widened 23 basis points,
reflecting the rising cost of hedging against debt default.
Across the region's currency markets the Philippine peso
lost 1.2 percent to 43.76 per dollar, the weakest
since May 31 last year, while South Korea's won fell
1.4 percent to 1,146.6.
India's rupee hit an all-time low on the U.S.
dollar, prompting intervention to stem the rot.
"If you put the Chinese numbers together with the policy
statements from both (the U.S. and China), what's clear to me is
that the emerging market currencies, particularly with a
commodity bias, will continue to go down," said Mark Matthews,
head of Asia research at Julius Baer.
In Europe a key survey of business activity from the 17
countries that use the euro helped offset some of the gloom by
suggesting the bloc's long-running recession was finally
beginning to ease.
However, the broad FTSEurofirst 300 index, which
only last month hit a 5-1/2 year high, had still fallen by over
2 percent by late morning, near to a 2-month low.
Markit's Flash Eurozone Composite Purchasing Managers'
Index, which is seen as a reliable economic growth indicator for
the bloc, rose to 48.9 in June from May's 47.7, topping
forecasts and leaving it at its highest level since last March.
The most encouraging picture was in southern Europe where
countries such as Spain and Italy saw the smallest declines in
In commodity markets the combined impact of less Fed money
to fuel speculative buying and weaker Chinese demand sent Brent
oil $2 a barrel lower for its biggest daily slide in
close to three weeks.
Gold tumbled past the lows set during a sharp selloff in
mid-April to be below $1,300 an ounce, its weakest level
since September 2010.