Risk assets slip lower on continued EM worries

Friday, January 31, 2014

After a busy day of economic data it seems that investors remained concerned regarding the global economic outlook despite the generally better than expected US data on the whole. Although personal income in the US coming in flat in December missing expectations of 0.2% growth, personal spending accelerated 0.4% in the same month. Bullish readings in January for the Chicago PMI and University of Michigan confidence survey also, at 59.6 and 81.2 respectively, were unable to shore up support on Wall Street as investor sentiment was dominated by emerging market concerns. At the time of writing, both the S&P 500 and DJIA were trading lower by 0.9% and 1.1% respectively.

Eurozone inflation fell below expectations in January, falling to 0.7% y/y in January, which caused investors to retreat from equity markets on speculation that prolonged deflation would prompt the ECB to take affirmative action. Major European indices struggled to hold on to short term, tentative support levels with London’s blue chip index closing 1.1% lower, dragged down by technology and financial stocks.

In what has been a choppy week for commodity prices, spot gold snapped a five week bull run, losing 1.8% this week despite slight gains throughout the day as risk averse investors increased gold ETF holdings. After a strong US Q4 GDP figure supported front month WTI prices higher in recent sessions, the recent risk off attitude has seen prices testing support towards $97/bbl while front month Brent prices face significant pressure from a fragile Chinese outlook after a weaker than expected manufacturing PMI reading in January, coming in below 50 for the first time since July last year.

With Chinese markets closed for the majority of the coming week and fears of emerging market contagion spreading from Turkey, Argentina and India as they struggle to control inflation, investors may opt to remain on the side-lines ahead of further direction from central bankers and key economic data releases.

London's blue chip index closes lower for the third consecutive session

UKX Index FTSE 100 Index Dail 2014 01 31 16 40 41

Total known gold ETF holdings increase as softer prices present a buying opportunity

GDTRGOLD Index SPDR Gold Trust 2014 01 31 15 13 09

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