Not a great day if you’re anything to do with equities: all the major European markets followed in the footsteps of their Asian cousins this morning by dropping almost as soon as the opening bell sounded, after the US published data showing activity in its manufacturing sector slowed last month.
Brace yourself for the roll-call of misery: the FTSE fell 0.4%, Germany’s Dax fell 0.8% while the French CAC 40 dropped 0.2% (at least traders can still have a giggle at its name). In Asia, the Nikkei closed 4.2% down (its worst day since June), while the Hang Seng in Hong Kong fell 2.9%. Last night, the Nasdaq also closed 2.61% down, while the Dow Jones dropped 2.08%. Happy days…
The fuss is over a survey published by the Institute for Supply Management published yesterday afternoon (US time), which showed its manufacturing index had fallen to 51.3 (over 50 positive, yada yada yada) in January, its lowest level for eight months. In turn, that made investors doubt the strength of the US economy (which grew 3.2% in 2013) – which in turn made the nay-sayers point out that perhaps all this ‘tapering’ malarkey has been a little premature.
Time to taper tapering? Some people certainly think so:
It begins. RBS this morning warns of "market bloodbath" unless Fed halts taper. We will hear more of this, but Fed looks pretty determined— A Evans-Pritchard (@AmbroseEP) February 4, 2014
Emerging economies have taken a battering over the past couple of months: once investors thought it was safe to go back into the US, they were queuing up to take their cash out of emerging economies and move it back into the nice, safe US. Now there’s a risk of cross-contamination: if the US isn’t in as strong a position as we thought, lower confidence could seep across the Atlantic.
Still, there’s a bit of good news from this side of the pond: construction rose in January, according to Markit, whose construction purchasing managers’ index rose to 64.6 (again – any number over 50…), up from 62.1 in January. Having taken such a hammering during the recession, the construction industry is now a bellwether for how the economy is doing in general. And judging by this, even if things were to get worse in the US, it looks like the UK would stand a decent chance of pulling through. Fingers crossed, anyway…