• Fed Twists again
• Paltry Chinese PMI data
• No ‘risk-on mode’ just yet

Stocks and commodities across the board tumbled Thursday as the previous day’s news from across the pond filtered through to markets. The Federal Reserve cut growth estimates and engaged in a further round of Operation Twist to extend the maturities of assets on its balance sheet in a bid to keep long-term interest rates low.

The end of the two-day policy meeting left markets disappointed, with investors requiring something bigger from Bernanke if confidence was to receive a boost. “The Fed’s action of extending the maturity of its balance sheet assets failed to impress the global markets which were expecting something from Ben Bernanke”, said Simon Denham, MD of Capital Spreads. “We got some more twisting from the Fed last night but investors were a little disappointed in the lack of any other big bazookas such as the introduction of QE3”, he added.

In line with the suggestion of many analysts prior to the data release, the US economy appeared not to be in a bad enough state to warrant any heavy handed intervention. Despite softening economic data of late – PMI surveys, consumer confidence data and employment numbers – the world’s largest economy is still in a better position than many of its global competitors. As Boris Schlossberg (pictured) of BK ForexAdvisors tweeted this morning: @fxflow: “#fxtalkthe only way that the Fed can politically justify more QE is by arguing that it will give tangible policy results = more refi”.

The Fed’s restrained move sent the MSCI All-Country World Index (MXWD) fell 0.3 percent by 8:04 a.m. in London as the Stoxx Europe 600 (SXXP) Index lost 0.5 percent and Standard & Poor’s 500 Index futures dropped 0.5 percent. The S&P GSCI Index of 24 raw materials lost 1 percent, extending a 1.9 percent decline yesterday. While in the commodities markets, oil dropped as much as 1.7 percent to the lowest since October and copper slid 1.8 percent.

Paltry Chinese PMI data

The drop in stocks was compounded by data released from China, which showed that manufacturing may shrink for an eighth month. The HSBC flash purchasing managers’ index revealed the fastest contraction of export orders since March 2009 and sent the euro lower for the first time in the three days. The EUR was lower by 0.5 percent to $1.2644 at the time of writing.  China’s Shanghai Composite Index (SHCOMP) dropped as much as 1.7 percent to the lowest in almost three months on the data and concerns that a growth slowdown in the nation is deepening.

The Chinese body blow to the shared currency came after PMI data also showed Germany’s private sector having contracted for a second consecutive month. June’s manufacturing activity has skidded to its weakest level in three years, stifling the potential of the 17-nation currency on live forex charts. Such data has served to fuel investor fear over the vulnerability of even the largest euro zone economies to the worsening crisis and the lingering possibility that Greece will leave the region.

No ‘risk-on mode’ just yet

But even though markets are currently dragging along forex charts, there is no indication yet that investors are seeking out risk. “Even though markets are cheap, we’re not back to a risk- on mode,” said Andrew Pease, Sydney-based chief investment strategist at Russell Investment Group, which manages about $150 billion. “Risks in Europe are not over by a long way.”

Investors will now have their eyes on further economic data out today, with PMI numbers from the rest of the EU and US weekly jobless claims the most likely to hold sway over markets.

Sarah Cox. Markets Writer, ForexSpace.com