Market Collapse Following FED Statement

The collapse in global equity markets continue.  FED’s statement on Wednesday to scale down economic stimulus and terminate the bond-buying program in 2014, has created panic and fear. The fear index reached the peak for the year. In New York the stock exchanges tumbled. The last two months profits were wiped out in two sessions. Dow Jones fell 2.34 % to 14 758 after the European markets were  hard hit  earlier in the day. In Asia, markets continue to fall dramatically.

Precious metals and developing countries’ currencies were especially hard hit. Gold prices fell more than 100 Dollars and reached levels unseen in years.  Silver was even harder hit and fell 10% in two days trading below USD 20 an ounce.  Oil prices quoted in USD fell 2.7 % partly as a result of a stronger Dollar.  Brent crude has fallen four Dollars and trades at USD 102 a barrel. Other commodities such as copper, drive further down.  Market sentiment is confused and bewildered in the wake of FED’s conditional statement.

FED’s program of bond-buying has  fueled stock market gains since last autumn and created a strong rally taking indexes to new all-time highs. Investors have,for months, been buying on market dips, and limited stocks decline.  It is a big question whether this pattern will continue. The money now leaving the equity market seems to be  convinced that the past months rally has been artificially created mainly by FED, and consider whether the  collapse represents a buying opportunity or a continued trend.

China’s higher funding  Inter bank costs are adding to market’s nervousness in a situation where the Chinese economy is slowing. Chinese stocks dropped 2.8 %. An eventual end to the super-easy US monetary policy  have raised concerns that a higher US interest rate will prompt a mass migration out of emerging markets. The Dollar has weakened somewhat against a basket of currencies after its big gains on Thursday. EUR/USD trades at 1.3229 and USD/JPY at 97,66.

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