London midday: Markets drop over two per cent in Fed aftermath

The Federal Reserve may have painted a better picture of the US economy last night, but the concept of a life without quantitative easing (QE) prompted a heavy sell-off on equity markets on Thursday morning, with indices across Europe hit hard following steep losses on Wall Street.The Federal Open Market Committee maintained its $85bn-a-month of asset purchases but Chairman Ben Bernanke signalled in the following press conference that the Fed would begin to 'taper' stimulus gradually this year, before it comes to a complete halt in 2014.QE, a stimulus programme which has flooded financial markets with liquidity for nearly five years, would end when the US jobless rate reaches around 7.0%, Bernanke said last night, adding that downside risks to the outlook have "diminished"."The strange thing about the reaction yesterday is that he didn't tell us too much that we didn't already expect," said Market Analyst Craig Erlam from Alpari. "With that in mind, the reaction we're seeing in the markets today, and potentially tomorrow, is probably an overreaction to Bernanke's press conference yesterday. In fact, I fully expect to see a correction next week, once the initial panic wears off and everything is put into perspective."Economic data also in focusAlso weighing on sentiment this morning was the news that Chinese factory activity fell to a nine-month low in June, casting further doubts over the recovery of the world's second-largest economy with weaker growth expected in the second quarter. The preliminary HSBC China manufacturing purchasing managers' index (PMI) dropped to 48.3 in June, missing the consensus estimate of 49.1. May's final reading of 49.2 had been the first time in seven months that the index had shown a contraction. Readings above 50 imply an expansion in the sector. Closer to home, the Eurozone composite PMI rose from 47.7 to 48.9 in June, the third straight monthly rise, showing that "the rate of contraction is on a moderating trend", according to Markit. The forecast was for a lesser rise to 48.1.Retail sales figures in the UK came in much better than expected, with sales rising 2.1% on the month in May, rebounding from the 1.2% fall in April and ahead of the +1.0% estimate.Over in the States this afternoon, US jobless claims for last week will be released, along with the manufacturing PMI, existing home sales and Philadelphia Fed manufacturing index.Miners drop sharply as metals slideMining stocks were bearing the brunt of a steep sell-off across the board on commodities markets morning as risk appetite declined in the aftermath of the Fed meeting and gloomy Chinese data. Randgold Resources, Polymetal, EVRAZ, Fresnillo, BHP Billiton, Rio Tinto and Antofagasta. were all registering heavy losses.Banking stocks were also lower as the Prudential Regulation Authority identified a £27.1bn capital shortfall across the UK banking sector. Barclays, Lloyds and RBS, who together account for over 93% of the shortfall, said that they are confident of meeting the PRA's target by the year end without the need to fundraise.Melrose was a heavy faller despite the company announcing the disposal of motor manufacturing division Marelli Motori for £181m, well ahead of Investec's £150m estimate.British fashion group Ted Baker was bucking the trend this morning with shares surging after the company delivered an impressive 33% rise in revenue for the 20-week period to June 15th. Dixons impressed with its better-than-expected full-year results in which it delivered a 39% increase in profits in the UK and Ireland, helped by a £45m reduction in group costs.Equipment rental firm Ashtead also rose after reporting a record year for profits, bolstered by revenue growth, operational efficiency and lower financing costs.FTSE 100 - RisersFTSE 100 - FallersPolymetal International (POLY) 573.00p -6.75%Aberdeen Asset Management (ADN) 374.00p -6.50%Randgold Resources Ltd. (RRS) 4,346.00p -6.42%Evraz (EVR) 109.50p -5.03%Fresnillo (FRES) 993.00p -4.98%BHP Billiton (BLT) 1,725.00p -4.80%Rio Tinto (RIO) 2,668.00p -4.73%Melrose Industries (MRO) 236.00p -4.45%IMI (IMI) 1,242.00p -4.09%Diageo (DGE) 1,850.00p -3.92%FTSE 250 - RisersTed Baker (TED) 1,640.00p +11.56%Dixons Retail (DXNS) 44.43p +4.96%Ashtead Group (AHT) 652.50p +4.07%Tullett Prebon (TLPR) 299.00p +2.22%Moneysupermarket.com Group (MONY) 184.80p +0.65%Supergroup (SGP) 724.50p +0.62%Chemring Group (CHG) 276.00p +0.55%United Drug (UDG) 314.20p +0.38%Dairy Crest Group (DCG) 464.90p +0.28%888 Holdings (888) 148.20p +0.14%FTSE 250 - FallersPetropavlovsk (POG) 129.70p -9.93%New World Resources A Shares (NWR) 73.00p -8.75%Man Group (EMG) 81.40p -6.87%International Personal Finance (IPF) 481.50p -6.05%Lonmin (LMI) 274.30p -5.87%Kenmare Resources (KMR) 27.26p -5.25%AZ Electronic Materials SA (DI) (AZEM) 306.60p -5.11%Imagination Technologies Group (IMG) 307.80p -5.06%Henderson Group (HGG) 144.20p -4.88%Hochschild Mining (HOC) 192.30p -4.71%