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Global markets hit after Chinese data and Fed comments

2013-05-23 09:25:07

Global markets fell after weak Chinese data and worries that the US Federal Reserve may slow its monetary stimulus.

In Asia, the fall was led by Japan's Nikkei index, which closed down 7.3%, having fallen as much as 10%.

European markets also reversed recent rises, with London, Frankfurt and Paris opening almost 2% lower.

It followed data showing a slowdown in Chinese manufacturing, and Fed chairman Ben Bernanke's hint that Quantitative Easing efforts may be scaled back.

Also, activity in the eurozone's services sector continued to contract in May, closely-watched preliminary data from Markit, a financial information services company, showed.

In Asia, Hong Kong's Hang Seng dropped 2.5%, and South Korea's Kospi lost 1.2%. Markets in Australia and Singapore also fell.

The China data showed that factory activity contracted for the first time in seventh months in May.

The preliminary HSBC Purchasing Managers' Index (PMI) for May fell to 49.6. A figure below 50 indicates a contraction.

Analysts said the figures suggest that the Chinese government's target of achieving 7.5% growth this year may be missed.

"It's no secret. The true picture is that China's export sector is slowing down, and its manufacturing sector is also slowing down. That means the trade surplus is almost gone," said Francis Lun, chief economist at GE Oriental Financial Group.

'Overheated'

In April, the PMI had fallen to 50.6 from 50.9 in March, underlining that the economy's pace of expansion was slowing down.

Investor sentiment had already soured on Wednesday after Mr Bernanke told a congressional committee that the central bank could scale back the pace of bond purchases later this year.

"Fed chairman Ben Bernanke's much anticipated testimony... certainly initiated the volatility" on stock markets, said Spreadex trader Max Cohen.

The bond purchases, known as Quantitative Easing, are designed to pump liquidity into the financial system to bring down borrowing rates for households and businesses, therefore shoring up the economy.

But some Fed officials have recently warned that continuing the asset purchases could lead to a spike in inflation.

Neil MacKinnon, economist at VTB Capital, said that while the financial markets were focused on Mr Bernanke's testimony, in his view "it says more about an equity market that is 'overheated' and due a correction rather than any suggestion from the Fed that monetary stimulus is about to be withdrawn".