Markets are tanking across Asia this morning, taking their cues from Wall Street which finished down sharply after the US central bank initiated what's called Operation Twist to juice up the US economy.
Across the board this morning, indices in Japan, Australia, Hong Kong and Shanghai are down sharply, by between 1.5 percent and 3.3 percent.
Overnight, Wall Street too fell dramatically, particularly after the US Fed announced 'Operation Twist'.
The move is intended to rev up the US economy without expanding the US Fed's balance sheet. It envisages sale of short-term debt and purchase long-term debt, with the intention of lowering long-term interest rates.
The announcement was entirely in line with markets' expectations, and long-term interest rates did fall. Yet, the sense that the Fed has effectively run out of policy options - and with Eurozone threat of a global economic slowdown still as high - the markets lost their nerve and dived.
The Fed noted that there were "significant downside risks" to the economy - which everyone knew, of course. It didn't help that rating agencies went into overdrive with a series of downgrades of European corporates.
Investors were also disquieted by the fact that there were marked divisions within the US Fed, which will increasingly cramp policy responses in the future. And since it's now a lot clearer that the earlier rounds of quantitative easing didn't quite work as intended, the expectations from Operation Twist are fairly low.
Back home in India, the cues for Mumbai when it opens this morning are very weak. Although analysts reckon that the Indian market is due for a rally, so long as the global economic worries remain, it's hard to see a sharp rebound.