November 13, 2013 / 10:16 AM / 4 years ago

GLOBAL MARKETS-Risk appetite subdued on Fed uncertainty, dollar steadies

* Rupee, rupiah tumble as taper talk hits Asian currencies
    * Europe shares down on Fed signals, Wall St seen lower
    * Sterling higher after UK jobs data, BoE forecasts
    * Chinese shares drop on plenum's lack of details

    By Marc Jones
    LONDON, Nov 13 (Reuters) - Uncertainty about a cut in
Federal Reserve stimulus and niggling doubts about the euro
zone's recovery and the longevity of Britain's record low
interest rates kept global markets under pressure on Wednesday.
    Britain's FTSE saw its biggest falls in over a month
and Europe's FTSEurofirst tumbled for a second day as
signs of a strengthening UK but worse-than-expected euro zone
factory data hit markets from opposing sides.
    Investors have been buying up European assets freely in
recent months on the view that its main economies are in
recovery mode, but not growing rapidly enough to allow central
banks such as the ECB and Bank of England to take away their
stimulus.
    Diverging signals from Britain and the euro zone dealt both
assumptions a glancing blow.
    Euro zone September industrial production fell slightly
short of analysts forecasts. And while BoE head Mark Carney
stressed his bank had no plans to raise UK rates, it was a huge
upward revision to its jobs outlook that left markets wondering
whether he could uphold the promise. 
    UK government bonds suffered along with the FTSE
amid the debate and the pound rallied to session highs against
both the dollar and the euro.
    "It was a rather interesting inflation report," said John
Hardy, head of FX strategy for Saxo bank.
    "It looks somewhat hawkish moving the employment forecast so
much but that should have been countered by the signal that
inflation is going down and the kicker that he could not rule
out changing the employment threshold (for raising rates)."    
    Markets had already been in a selling mood. Emerging Asian
currencies and the region's shares took a beating overnight in
the wake of mixed signals from Fed officials about the future
for the U.S. central bank's asset-buying stimulus.
  
    Regular hostages to U.S. stimulus fortune, the Indian rupee
 and the Indonesian rupiah, looked to have
stabilised in European trading but were nursing wounds.
    Earlier, Jakarta's Composite Index stumbled 2
percent to a two-month low as the rupiah hit its
weakest in more than four-and-a-half years despite the central
bank's surprise rate hike in the previous session.
    The Indian rupee also slumped, hitting a two-month low after
surging consumer prices sparked fears the central bank would
continue to raise interest rates and undermine economic growth
at a particularly vulnerable time for the currency.
    "There is no fundamental reason for volatility in value of
the rupee," the head of India's central bank, Raghuram Rajansaid
said at a hastily arranged news conference. "At some time, it
makes sense to take a deep breath."
        
    YELLEN FROM THE HILL
    But with a crucial hearing for Fed chair-in-waiting Janet
Yellen and European third quarter growth figures both due on
Thursday, the dollar and U.S. and euro government bonds
 were by and large in a holding pattern.
    "We are pausing," said National Australia Bank strategist
Gavin Friend. "Any nuggets Yellen gives on her policy leaning
are going to be extremely closely scrutinised. And if Q3 euro
zone GDP surprises on the downside that could give the euro a
kick."
    The worry investors have is that if the Fed starts winding
down its huge stimulus global borrowing costs will rise, and as
the return on developed market assets such as bonds rises,
emerging markets will lose their attraction and suffer.
    MSCI's emerging market index lost about 1.3
percent as it notched up its 10th straight session of falls and
hit its lowest levels since mid-September. 
    Chinese shares were some of the biggest underperformers
after the initial communique from a Communist Party policy
meeting to set an economic blueprint for the coming decade
offered few details. 
        
    EURO HOLDING 
    Futures prices pointed to opening falls of around 0.25
percent for the S&P 500 and Dow Jones Industrial Average
 when Wall Street resumes.
    Amid all the surrounding FX movement, the dollar wobbled but
only slightly. It was off about 0.1 percent at 99.45 yen 
after rising as high as 99.79 yen on Tuesday, its strongest
level since Sept. 13. The dollar index inched down about
0.1 percent to 81.138.
    The euro was slightly lower from Asian levels at $1.3424
 after the factory data, but holding well above lows set
last week, when it suffered a heavy selloff after the European
Central Bank cut its main rate earlier than had been expected.  
 
    In commodities markets, gold gained 0.4 percent to
$1,275.69 an ounce but remained not far from the previous
session's four-week low.
    U.S. crude for December delivery edged up to $93.30 a
barrel after flirting with 4-1/2 month lows, while the benchmark
three-month copper contract fell 1.11 percent to $7,040
a tonne.
    Oil was helped as supply outages countered concerns about
reduced U.S. monetary stimulus and a forecast rise in U.S.
stockpiles.
    A lack of success in weekend talks on Iran's nuclear work
cut the chance of its supplies returning to the market while
Libyan exports remain disrupted by strikes and protests. 
    "Brent seems to have found quite good support around the
$105.50-$107 area and is beginning to bump along," said
Christopher Bellew, an oil broker at Jefferies Bache.

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