Equity markets buoyed by EM central bank intervention

Wednesday, January 29, 2014

US stocks snapped the bear run yesterday, rising on stronger corporate earnings and economic data ahead of the FOMC meeting. The S&P 500 rallied 0.61% higher with financials and healthcare leading the rise on an improved outlook for AIG and better than expected earnings from Pfizer. The technology subsector capped gains in the index on weaker reported sales from Apple and an earnings miss from Seagate. The DJIA added 0.57%, snapping a five session losing streak on broadly positive economic data. Despite the surprise decline in durable goods orders in December, which fell 4.3% m/m against a 1.8% expected gain and a 3.5% gain the previous month, global equity markets were buoyed by stronger consumer confidence and optimism ahead of the Fed’s rate decision and tapering outlook. Market participants expect the Fed to reduce bond buying by a further $10bn to $65bn this month with treasury and MBS purchases declining to $35bn and $30bn respectively while the base rate is expected to remain unchanged at 0.25%.

The sanguine investor sentiment carried over to the Asian session as emerging market currencies and equity indices rallied on the Turkish rate increase. Japanese markets were encouraged by the improving outlook as exporters supported the Nikkei and TOPIX 2.7% and 2.6% higher. Chinese equity markets also made steady gains, building on recent support as the Shanghai Composite and CSI 300 added 0.56% and 0.36% during the overnight session, ending their shorter trading week on a positive note ahead of the Lunar New Year celebrations.

The Turkish central bank moved to increase interest rates to 10% in a bid to control the slide in the lira, which pushed towards 2.400 before pulling back below 2.1800 on the intervention. The recent selloff across emerging markets has prompted a significant response from central bankers around the world in recent weeks, with Argentina moving to devalue its currency and raising interest rates in a bid to protect its foreign reserves, the Reserve Bank of India increasing the repo rate from 7.75% to 8% as they attempt to rein in inflation and now Turkey’s central bank intervening to halt the slide which has seen the lira fall as much as 12.5% since the start of the month.

Durable goods orders register a surprise drop in December

DGNOCHNG Index US Durable Goods 2014 01 29 07 32 28

Turkish central bank raises repo rates in a bid to shore up the lira

TUBR1WRA Index Turkey 1 Week Re 2014 01 29 07 44 25

Events for today: Wednesday, 29 January 2014




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