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Markets tumble as Fed signals imminent end to QE

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Markets across the globe tumbled overnight after the US Federal Reserve announced it may slow down asset purchases by the end of the year.

On Wednesday the Fed’s chairman Ben Bernanke said the Bank could taper its QE programme by the end of 2013 and wind it down completely by mid-2014 if the US economy continues to improve in line with expectations.

Currently the Bank is buying $85bn (£54bn) worth of bonds each month and interest rates are at historic lows between 0% and 0.25%, but the chairman foresees an improvement in the economy, which would trigger a change in policy.

His speech triggered a sharp sell-off in equity markets, with the S&P 500 experiencing its biggest sell off in two weeks, down 1.4%, while the Dow Jones also shed 1.4%.

Elsewhere, Japan’s Nikkei closed down 1.7% at 13,014, after briefly dipping below the 13,000 mark.

Markets in Hong Kong and China also suffered a hefty sell off, reacting to both the Fed’s announcement and the weak Chinese manufacturing data for June.

The Hang Seng has plummeted 2.6% to 20,434 while the Shanghai Composite finished down 1.8%, at 2,105.

Index futures across Europe also signaled a sharply lower open on Thursday, with futures for the FTSE 100, Euro Stoxx 50, Germany’s DAX and France’s CAC all down between 1.3% and 1.6% at 6.02 am, according to Reuters.

A ripple effect was felt across bond markets, as treasury prices sank following the announcement and benchmark ten year treasury yields were pushed to a 15-month high, up 2.38%.

The US dollar rose broadly after Bernanke’s speech, while other global currencies fell. It gained 0.3% against the yen, trading at 96.9.

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