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Stocks struggle on Fed taper talk

MSCI

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.04%, stocks in South Korea shed 0.34%, Hang Seng lost 0.72%, but Japan’s Nikkei gained 0.43%.

Stock markets struggled for traction on Thursday after a jittery session on Wall Street where cryptocurrencies crashed and a hint of tapering talk from the U.S. Federal Reserve drove selling in the bond market while lifting the safe-haven dollar.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.04%. Stocks in South Korea shed 0.34%, and Hong Kong’s Hang Seng lost 0.72%, but Japan’s Nikkei gained 0.43%.

Euro Stoxx 50 futures rose 0.64%, German DAX futures also gained 0.64%, and FTSE futures rose 0.88%, pointing to a positive start to the European session.

Bitcoin, which slumped 30% to $30,000 overnight, was struggling for support around $39,000. U.S. stock futures were flat.

Commodities also dropped, Treasuries nursed losses while the dollar held overnight gains.

Fed minutes published on Wednesday said “a number” of officials thought that if the recovery holds up, it might be appropriate to begin discussing a plan for adjusting the pace of asset purchases.

This is very much the market view, really, ING economist Rob Carnell said, with traders expecting strong hints over summer that the taper is coming and that policy support could start to ease in December.

This is taking us to where we think we’re going to go, and perhaps this removes a little bit of uncertainty around that – so you get a slight increase in bond yields and the dollar rallying a little bit, he said.

The yield on benchmark 10-year U.S. Treasuries was up 4.1 basis points overnight to 1.6830% and dropped to 1.6693%. The dollar scraped itself off a four-month low to hover around $1.2181 per euro.

The dollar also gained through its 20-day moving average against the yen, Aussie and kiwi. It last bought 109.14 yen and the dollar index was last at 90.132.

On Wall Street overnight the S&P 500 finished 0.3% lower and the Nasdaq was flat, something of a recovery after each fell more than 1.6% during the session.

The trigger for sharp falls in bitcoin, ether and other cryptocurrencies appeared to be due to China’s move on Tuesday to reinforce strict curbs on crypto trading by barring financial institutions from providing transaction services.

It’s not just crypto – although that is the poster child of this movement – but SPACs, recent IPOs, ARK Innovation and Tesla, to name a few, have all lost their bid, said Chris Weston, head of research at brokerage Pepperstone in Melbourne.

He said: For me, the overriding factor is liquidity and the timing of lower liquidity and that is having huge ramifications – we are debating, not just a slower pace of central bank asset purchases (QE), but when QE comes to an end.

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