Comment: Rout in global markets eases but hesitation remains before Fed meeting
January 28, 2014 7:04 am
The global deterioration of equity markets paused overnight in Asian markets, a day after stocks in the region fell to six-month lows. Slowing growth in China together with Fed’s tapering of QE prompted fresh fears about the outlook for emerging markets. Last week’s slide in the Argentinian peso after the central bank there halted policies to support the currency together with run on the Turkish Lira [a rate hike expected in coming days from the central bank there] and on political unstable nations like Ukraine and Thailand, all added to rattle investor sentiment around the EM space.
Structural imbalances remain a huge threat to EM, with Latin American nations under more scrutiny as countries like Brazil operate huge current account deficits which leave them vulnerable to the outflow of capital. In Asian markets overnight, India’s central bank surprised the market by raising interest rates for the third time in six-months to respond to the vulnerability of the rupee currency together with rising inflation. With this all in the background and ahead of tomorrow’s Fed policy meeting in which most in the market now expect a further reduction of the bond buying programme by $10billion, it’s no brainer that asset allocators around the world are shedding off their EM holdings.
The modest recovery in Asian markets helped kick European share markets higher this morning but investors mostly avoided taking big bets before the Fed policy meeting that is scheduled to commence today with an outcome expected tomorrow. Some half decent earnings out of Europe are helping to steady equity markets in the region; Fresnillo and AMEC in London both reported strong earnings, adding gains to their share price. In mainland Europe, capital goods stocks Seimens and Philips both reported upbeat numbers which were a bit of a surprise after ABB and Alstom last week kicked off the sector reporting season with profit warnings, gearing us up for a nasty numbers.
Apple in the US reported numbers after the closing bell; a flat earnings report with the tech giant lowering its sales outlook for 2014, rattling investors – the company sold less iPhones than expected, around 51million during the period versus expectations of 55million. Revenues for 2014 are slightly less than forecast and worryingly, Apple is seeing a drop-off in the Americas and importantly, the Asia-Pacific region which fell by 9%. Royal Bank of Scotland shares are on the back foot, as expected, after the bank yesterday afternoon announced tat it will have to set aside around £3billion for litigation and customer compensation costs. The bank is now facing fresh pressure about its capital strength as it has to contend with these charges which will eat away at full-year earnings; markets expect up to £8billion in pre-tax losses for the FY.
Looking ahead, investors eye preliminary data that might show that the UK’s economic growth expanded 2.8% YoY in the fourth-quarter, compared to a 1.9% YoY increase in the previous quarter. We also have important US releases in the shape of durable goods orders and US consumer confidence data, due later this afternoon.
The global deterioration of equity markets paused overnight in Asian markets, a day after stocks in the region fell to six-month lows. Slowing growth in China together with Fed’s tapering of QE prompted fresh fears about the outlook for emerging markets. Last week’s slide in the Argentinian peso after the central bank there halted policies to support the currency together with run on the Turkish Lira [a rate hike expected in coming days from the central bank there] and on political unstable nations like Ukraine and Thailand, all added to rattle investor sentiment around the EM space.
Structural imbalances remain a huge threat to EM, with Latin American nations under more scrutiny as countries like Brazil operate huge current account deficits which leave them vulnerable to the outflow of capital. In Asian markets overnight, India’s central bank surprised the market by raising interest rates for the third time in six-months to respond to the vulnerability of the rupee currency together with rising inflation. With this all in the background and ahead of tomorrow’s Fed policy meeting in which most in the market now expect a further reduction of the bond buying programme by $10billion, it’s no brainer that asset allocators around the world are shedding off their EM holdings.
The modest recovery in Asian markets helped kick European share markets higher this morning but investors mostly avoided taking big bets before the Fed policy meeting that is scheduled to commence today with an outcome expected tomorrow. Some half decent earnings out of Europe are helping to steady equity markets in the region; Fresnillo and AMEC in London both reported strong earnings, adding gains to their share price. In mainland Europe, capital goods stocks Seimens and Philips both reported upbeat numbers which were a bit of a surprise after ABB and Alstom last week kicked off the sector reporting season with profit warnings, gearing us up for a nasty numbers.
Apple in the US reported numbers after the closing bell; a flat earnings report with the tech giant lowering its sales outlook for 2014, rattling investors – the company sold less iPhones than expected, around 51million during the period versus expectations of 55million. Revenues for 2014 are slightly less than forecast and worryingly, Apple is seeing a drop-off in the Americas and importantly, the Asia-Pacific region which fell by 9%. Royal Bank of Scotland shares are on the back foot, as expected, after the bank yesterday afternoon announced tat it will have to set aside around £3billion for litigation and customer compensation costs. The bank is now facing fresh pressure about its capital strength as it has to contend with these charges which will eat away at full-year earnings; markets expect up to £8billion in pre-tax losses for the FY.
Looking ahead, investors eye preliminary data that might show that the UK’s economic growth expanded 2.8% YoY in the fourth-quarter, compared to a 1.9% YoY increase in the previous quarter. We also have important US releases in the shape of durable goods orders and US consumer confidence data, due later this afternoon.
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