Asian, European Rout Continues Following Fed Comments

Andy Parker
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Asian, European Rout Continues Following Fed Comments
FILES - A picture taken on June 1, 2008 shows a huge symbol of the Euro in front of the European Central Bank (ECB) in Frankfurt/M., western Germany. The US Federal Reserve struggled with central bank partners on September 26, 2008 to avert a "money market meltdown" as US lawmakers wrangled over a plan to stem the worst financial crisis most have ever known. Central banks added 13 billion dollars (8.8 billion euros) to an emergency fund that has become crucial for European banks, bringing the total made available so far to 290 billion dollars. AFP PHOTO / DOMINIQUE FAGET

Asian markets sank further today after Federal Reserve Chair Janet Yellen presented a cautious outlook for the U.S. economy while indicating that rate hikes will only be gradual. The markets may have interpreted the Fed’s tone as a signal of delayed or even no rate hikes throughout the year.

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The Fed’s commentary may have added to fears of another global recession as investors flee to accumulate safe haven assets such as yen, bonds (NYSEARCA:BND) and gold (NYSEARCA:GLD). Asian markets served as a testament to investors’ aversion for equities as most of Asian indices open for trading registered large falls for the week. Hong Kong’s Hang Seng opened the Lunar New Year holiday and closed 3.85% lower at 18,545.80. Mumbai’s Sensex continued to trade in the red, falling by 2.98% to 23,049.95. Japan’s Nikkei 225 took a break from its two-day free fall only because it remained closed today for the National Foundation Day holiday.

Sentiment Continues to Worsen

For European markets, the situation was no different than their Asian counterparts. The major indices opened sharply lower as analysts blamed the Fed’s statement for causing anxiety among investors. Resultantly, Britain’s FTSE 100 hit a 3.5 year low, erasing as much as 163.11 points today to 5,509.19. Euronext 100 and Germany’s DAX too fell 3.81% and 3.11% respectively to 769.57 and 8.736.55. Losses were higher for France’s CAC 40, which traded down by 4.11% to 3,894.30 while the Swiss Market Index lost 282.71 points to 7,449.22.

European bank shares took another beating today after yesterday’s recovery as they hit August 2012 lows. Among other developments, it came to light that Sweden’s central bank has trimmed interest rates to -0.50% from -0.35% in an unprecedented attempt to help stimulate growth and inflation.

The weaknesses in global began after major U.S. indices set a negative tone yesterday. The Dow Jones Industrial Average fell 0.62% to 15,914.74 and S&P 500 Index lost 35 points to 1,851,86 as the market digested comments from Yellen. The overall view of equities was dismal for lack of bullish impetus by the Central Bank, analysts stated.