US Fed stimulus hint sees markets go topsy-turvy

Julian Harris
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INVESTORS throughout the world endured another rollercoaster ride yesterday, as the price of assets was jolted around amid volatile trading.

The FTSE 100 initially jumped out of bed, gaining 70 points at the open. Yet the previous day’s hangover soon kicked in and the blue chip index slumped to 6,072 points – its lowest level since June 2013.

For much of the day, equities and other risky assets were hit by a continued selloff, while safe havens gained. But in later trading the tide turned again, after doveish comments from a US Federal Reserve official boosting hopes of more stimulus to come.

St Louis Federal Reserve Bank president James Bullard said that the Fed might want to keep up its bond buying stimulus for now given a drop in inflation expectations. The Fed has been on track incrementally to reduce the programme – known as quantitative easing (QE). However, recent comments have hinted that the process of tapering could be stopped or even reversed.

“Bullard’s statement suggests a deep anxiety at the heart of the US central bank with respect to the slowdown in global growth and perhaps the strength of the US dollar,” said Michael Hewson, chief markets analyst at CMC Markets.

Elsewhere in Europe, other stock markets also pared losses following Bullard’s comments. The FTSEurofirst 300 index of top European shares dropped to its lowest point since September last year during the day, yet recovered to end just 0.5 per cent lower. The degree of upheaval in the markets was reflected in the Euro STOXX 50 Volatility Index, which jumped to 31.5, its highest reading since the middle of 2012.

Meanwhile, across the pond, the S&P and the Nasdaq recovered to post slight gains on the day, up 0.01 per cent and 0.05 per cent respectively. However, the Dow Jones closed down for a sixth consecutive session.

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