Asian Shares Slide Before FED Meeting

After a strong session in New York on Monday where Dow Jones, S&P, and Nasdaq all gained, Asian shares slid as investors grew increasingly nervous ahead of the news from the U.S. Federal Reserve meeting and Bernanke’s news conference on Wednesday. The Japanese Nikkei and the Asian Pacific MSCI-indexes fell as did Australian shares, which lost 0.9 %. The currencies are relatively steady with the EUR/USD at 1.3354 and the USD/JPY at 94.84.

Oil prices continue to trade higher due to tension in the Middle East. Brent crude stands at USD 105.57 a barrel. The G-8 meeting started their meeting in Northern Ireland yesterday, seeing Russia increasingly isolated in its support to the Assad-regime in Syria. U.S. and European leaders launched simultaneousl talks on the world’s most ambitious free trade agreements.

Markets are looking for the FED to clarify its outlook on its massive stimulus program when the U.S. central bank concludes its two-day policy meeting on Wednesday. The FED's aggressive bond-buying program, along with other central banks accommodating monetary policies to promote growth, have provided liquidity which have been invested into higher risk assets as shares. Even modest tapering in monetary policies might have had direct and unforeseen impact on the stock rally seen over the last six months.

Uncertainty over the FED's thinking has recently weighed in on the dollar, which has plunged to a four-month low towards a basket of currencies. The dollar’s fall against the Yen has been linked primarily to speculators and investors cutting down on their Yen short positions after the Bank of Japan ldid nothing to quell a highly volatile domestic bond market ast week. The fall in the Yen was sparked by a sell-off in Nikkei shares which have fallen 20 % from their peak at the end of May.

It is expected that the FED, after its Wednesday meeting, will stress its commitment to continued stimulus and that any tapering will not signal lightening liquidity. At the G-8 meeting, the eurozone came under pressure to press on with a banking union. Japan was urged to follow up on central bank stimulus with structural reforms to tackle its budget deficits.