Equities Under Pressure After Fed Comments, Weaker Chinese Data

declineGlobal equities declined on Thursday in reaction to news from China that showed manufacturing data for May contracted and the Federal Reserve may reduce or taper the level of its monetary stimulus to support the economy.

U.S. equities faced selling pressure on Wednesday following comments made by Fed Chairman Ben Bernanke that suggested the rate of the Fed’s bond purchases could slow in the next few meetings.

Equities continued to decline later in the day after a review of Fed minutes showed that some Fed members are willing to dial down the level of the Fed’s bond purchases as early as June if the U.S. economic recovery appears to be sustainable.

During Chairman Bernanke’s speech on Capitol Hill he explained that scaling back its monetary stimulus prematurely could derail the economic recovery.

“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke said.

Equities rallied on the news.

During a question and answer session, Chairman Bernanke admitted that the rate of bond purchases could slow in the next few meetings which suggested to many investors that the Fed may be planning to taper its support of aggressive monetary stimulus.

China

In China a preliminary reading of Chinese manufacturing PMI for May showed a reading of 49.6, missing estimates of 50.4.

A reading of below 50 signals contraction.

U.S. Jobless Claims

Latest employment data released today from the Department of Labor shows that fewer Americans filed new claims of unemployment benefits last week, showing that the labor market is steadily improving as economists search for clues about whether the economy is strong enough to stand on its own two feet without the assistance of aggressive monetary stimulus from the Fed Reserve.

The Department of Labor showed that initial claims for state unemployment benefits declined 23,000 to a seasonally adjusted level of 340,000.

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