Global stocks markets hit after Chinese data and Fed comments

          Global markets have fallen after weak Chinese data and fears the US Federal Reserve may slow its monetary stimulus. In Asia, the fall was led by Japan's Nikkei index, which closed down 7.3% having fallen as much as 10%. European markets slipped, with London, Frankfurt and Paris all closing down by about 2%. In the US, the Dow Jones was slightly down in mid-day trade. The falls came after a long period of rising share prices, with several indexes reaching record highs. Earlier on Wednesday, data was released suggesting a slowdown in Chinese manufacturing. On Tuesday Fed chairman Ben Bernanke hinted that Quantitative Easing efforts in the US may be scaled back. Also, activity in the Eurozone’s manufacturing and services sector continued to contract in May, closely-watched preliminary data from Mark it, a financial information services company, showed. Separate data also from Mark it, and released before US stocks opened, showed US manufacturing activity fell for the second straight month in May. But a fall in the number of Americans claiming weekly unemployment benefits, pointing to a tentative recovery in the labor market, gave a mixed picture of the economy. But traders also suggested a correction was expected, following a period of rising markets. "Given how overbought the markets were it's not surprising to see a correction," said Jawaid Asfar, a sales trader at Secure Equity.

In Asia, Hong Kong's Hang Seng dropped 2.5%, and South Korea's Kospi lost 1.2%. Markets in Australia and Singapore also fell. The Nikkei's 7.3% fall was the steepest one-day decline since 2011 in the wake of the tsunami and nuclear crises. The China data showed that factory activity contracted for the first time in seventh months in May. The preliminary HSBC Purchasing Managers' Index (PMI) for May fell to 49.6. A figure below 50 indicates a contraction. Analysts said the figures suggest that the Chinese government's target of achieving 7.5% growth this year may be missed.

'Overheated'

"It's no secret. The true picture is that China's export sector is slowing down, and its manufacturing sector is also slowing down. That means the trade surplus is almost gone," said Francis Lun, chief economist at GE Oriental Financial Group.  In April, the PMI had fallen to 50.6 from 50.9 in March, underlining that the economy's pace of expansion was slowing down.

Investor sentiment had already soured on Wednesday after Mr. Bernanke told a congressional committee that the central bank could scale back the pace of bond purchases over the next few meetings if the job market shows "real and sustainable progress". "Fed chairman Ben Bernanke's much anticipated testimony... certainly initiated the volatility" on stock markets, said Spreadex trader Max Cohen. The central bank's $85bn (£56bn)-bond purchases, known as Quantitative Easing, were designed to pump liquidity into the financial system to bring down borrowing rates for households and businesses, therefore shoring up the economy.

The minutes of the Fed's last meeting - revealed shortly before Mr. Bernanke's testimony - said that "a number" of officials favored slowing down the Fed's efforts as early as June. The Fed next meets on 18-19 June. Neil MacKinnon, economist at VTB Capital, said that while the financial markets were focused on Mr. Bernanke's comments, in his view "it says more about an equity market that is 'overheated' and due a correction rather than any suggestion from the Fed that monetary stimulus is about to be withdrawn".

Home