Emerging markets suffer on worries over Federal Reserve tapering

Tim Wallace
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JITTERY investors sent markets into a spiral yesterday on fears the US Federal Reserve could announce plans to slow down the pace of money printing as soon as tonight.

India led the emerging markets down as stocks plummeted and the rupee hit record lows.

Brazil’s markets dropped fast enough to put fundraising bids on ice, and Europe’s peripheral nations saw borrowing costs jump again.

Only a series of strong corporate financial results kept the US from following suit, with markets edging slightly upwards.

The Fed has been printing $85bn (£54.2bn) each month as part of its quantitative easing (QE) scheme to buy mortgage assets and government bonds, propping up stock markets and holding down market interest rates.

But as the economy recovers it has hinted it could slow the pace of printing as soon as next month depending on labour market conditions, with analysts watching tonight’s minutes from the Fed’s most recent meeting closely for any more details.

“Investors remain highly attuned to the timing and scope of any potential change in monetary policy. The economic data last week was mixed but investors focused on one number in particular – the weekly initial jobless claims report, which was stronger than expected,” said BlackRock’s Russ Koesterich.

“Fed officials have been fairly consistent in saying that if the labour market continues to improve at the current pace ... the Fed is likely to start to reduce its asset purchases this autumn, probably at its meeting in September.”

Growth in the US has also encouraged investors to pull money out of high-growth emerging markets, to capitalise on the US recovery.

That pushed the Jakarta stock exchange down 3.21 per cent yesterday, accelerating its declines – the market has fallen almost 20 per cent since May.

Stocks in Sao Paolo fell 2.06 per cent, as airline Azul cancelled its planned fundraising bid on unpredictable markets.

And in India stocks fell 0.25 per cent while the rupee slid to 100 to the pound, a record low.