Stock Fall on the Cards

Business as usual this morning in London? Well if the FTSE 100 Index’s fall of 42.71 points (0.7%) is business as usual, then yes, it was this morning as the markets opened in London.

German stock also took a knock for the worse. The DAX had a 0.3% crunch taken out of it. It has seen an increase overall in the past 12 months every month but one. Now it’s down to 8,267.85.

In two significant speeches by senior Federal-Reserve officials yesterday (Fisher and George), it was strongly suggested that there was no point waiting any longer for a reduction in QE. A slow-down in stimulus if not complete withdrawal is on the books for September. But Richard Fisher, President of the Dallas Federal Reserve Bank, did go as far as to say that it wasn't the markets that would dictate the policies of the policymakers. Apparently we are all on drugs: ""We cannot live in fear that gee whiz, the market is going to be unhappy that we are not giving them more monetary cocaine". Monetary drugs! But, wasn't that what happened before when the Federal Reserve started QE? Wasn't it the market that dictated to the policymakers then?

The Dow Jones closed yesterday down 76.49 point (0.50%). That’s the end to the 20 weeks of gains. As business gets ready to open in New York, the only way the market can go is down to follow suit with the FTSE 100 and the DAX some might say.

The UK service sector might be growing faster than expected in May. The Purchasing Managers Index (PMI) increased from April’s figure of 52.9 to 54.9 (toppling the forecasted figure of between 53.0 and 53.6). UK businesses might be growing at the fastest rate that have ever done in the last three years, in fact, according to the PMI. The Eurozone might be seeing its slump easing off a tad with a slowdown in the contraction of economic activity (0.2% this last quarter). But, none of that is stopping the fear in the UK that the Federal Reserve will lay off the stimulus plans and that should be taken as a warning to Ben Bernanke and the Federal Reserve that it’s not time to pull the stoppers on the economy and let it fend for itself (yet).

Second-guessing what moves are next up on the chess board are what the market does best (or tries to, at least). If reports to be released today in the US show that there is a gain in employment figures (estimated by experts at 165, 000), which would be an increase on last month’s increase of 119, 000, then it looks like the Federal reserve may have another reason to stop the QE measures bolstering the economy. But, some are saying that’s too early. Or at least, the market thinks it is, and that’s what’s important. September will be the time it all happens, but until then?

Some are saying that anything could happen between now and September, though. Easy to give something to someone, harder to take it away from them. Perhaps the Federal Reserve should have considered that before that started using QE? Others might quip that it’s because of this that employment is on the rise in the US today and they had every reason to do it.

Given the fall in the markets today, the only ones that might be happy are those that live their lives by the Hindenburg Omen. The others most certainly won’t. Although, there’s money to be made even when the markets fall, isn’t there? Whatever happens, who's gonna be wearing the 'was-bound-to-happen' shirt today?

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tothetick

Professional team of writers/analysts analyzing the financial markets.

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