It’s been a dreadful week for investors and the rot hasn’t stopped yet. The savage and broad-based sell-off in financial markets has been a very direct and brutal response to statements by US Federal Reserve Chairman Ben Bernanke last Wednesday when he suggested that the "tapering" of the Quantitative Easing program, amounting to USD85 billion a month in bond and mortgage buying, would begin later this year and be completed by the middle of 2014. Bernanke also made it clear that the US Federal Reserve had no intention of selling any of the trillions of dollars of securities that it had bought under the Quantitative Easing programs.
Despite reassurances that the US Federal Reserve’s policy stance would remain expansive well beyond mid-2014 and that the Fed would maintain official interest at their current near-zero level until 2015, investors have rushed for the market’s exit door.
Over the week, equities are down 3%, commodities lower, gold has lost 6.5% in value, yields are up to 40 basis points higher across the curve and the Australian Dollar is down another 4 cents. The US equity market had a small recovery over the weekend, but more volatility is expected and our market still looks weak for the open this morning.