31.01.14 Friday Morning

Global indices are in the midst of the most volatile period for equities in quite some time, spurred on by a crash of emerging market currencies. Major equity gauges began to slide last Thursday when a basket of currencies, most belonging to emerging economies & various Asian countries, started to show unexpected weakness.

The 20 most-traded emerging currencies have lost about 10 percent in the past 12 months. This equates to the worst annual slide since 2008 with more than $460 billion of market value wiped from emerging market equities.

Focusing on the U.S. Federal Reserve, policymakers decided to trim bond buying for a second straight meeting. The Fed will cut bond purchases by a further $10 billion to $65 billion, citing improving labour market conditions and encouraging economic growth.

In what was Ben Bernanke’s last FOMC meeting as Chairman of the Fed, the incoming Chairman Janet Yellen has been left in an envious position of having a united group behind her. The tapering strategy has forced policymakers to come together amid concern that the Fed’s record $4.1 trillion balance sheet risks causing asset price bubbles, whilst more needs to be done to reduce unemployment.

The Fed has stressed that bond purchases are not a pre-set course and will be divided between $35 billion in Treasuries and $30 billion in mortgage debt. Additionally, the interest rate will be held near zero “well past the time” that unemployment falls below 6.5 percent. This is especially true in circumstances where inflation remains below the committee’s goal of 2 percent.

U.S. stock-index futures have retreated today (Friday) once again with the S&P 500 heading for its worst January since 2010. Despite the worrying start to 2014, U.S. earnings have performed fairly well. About 79 percent of the companies in the measure that have posted earnings this season exceeded analysts’ projections. However, U.S. headline indices are still set for their first monthly decline since August 2013. Next week’s Non-Farm data may provide the perfect opportunity for the bearish tide to turn.

Asian stocks have failed to fare any better, heading for their largest monthly slide in 8 months. Whilst tapering fears contributed, contraction in Chinese manufacturing has weighed heavily on the MSCI Index. The measure has dropped 4.7 percent in January setting it on course for the biggest monthly slump since May, sparked by weaker-than-expected economic data from China coupled with the sell-off in emerging market currencies.

Worrying eurozone inflation figures released today have added to emerging market concerns. Inflation within the bloc remained well under the 2 percent target that the ECB set, printing at 0.7 percent for January. The disappointing data, which has been driven by falling energy prices, adds pressure on policymakers who must decide whether or not to cut interest rates next Thursday.

We expect to see heavy market volatility when Mario Draghi, European Central Bank President, delivers his press conference. Scheduled for Feb 6th at 13:30, the conference covers in detail the factors that affected the most recent interest rate and other policy decisions, such as the overall economic outlook and inflation. Most importantly, it provides clues regarding future monetary policy.

Stock of the Week: Blinkx - 120.25p

Video search group Blinkx's shares have plunged over 36 percent from the week high achieved on Tuesday as investors reacted to accusations made in a blog post about the company by a Harvard Business School professor. A blog post written this week by Associate Professor Ben Edelman, who currently researches internet advertising, claimed Blinkx had close links to companies which used “deceptive tactics” to sneak third party software on to users’ computers.

Next Week’s Notable Economic Events:

 

Monday –

• AUD – Building Approvals m/m @ 00:30
• GBP – Manufacturing PMI @ 09:30
• USD – ISM Manufacturing PMI @ 15:00

 

Tuesday –

• AUD – Cash Rate @ 03:30
• GBP – Construction PMI @ 09:30

 

Wednesday –

• GBP – Services PMI @ 09:30
• USD – ADP Non-Farm Employment Change @ 13:15
• USD – ISM Non-Manufacturing PMI

 

Thursday –

• AUD – Trade Balance @ 00:30
• GBP – Asset Purchase Facility @ 12:00
• EUR – Minimum Bid Rate @ 12:45
• CAD – Trade Balance @ 13:30
• EUR – ECB Press Conference @ 13:30
• USD – Trade Balance @ 13:30
• USD – Unemployment Claims @ 13:30
• CAD – Ivey PMI @ 15:00

 

Friday –

• AUD – RBA Monetary Policy Statement
• GBP – Manufacturing Production m/m @ 09:30
• CAD – Employment Change @ 13:30
• USD – Non-Farm Employment Change @ 13:30
• USD – Unemployment Rate @ 13:30

 

Next Week’s Notable UK Earnings:

 

Tuesday –

• BP – Q4 2013 Earnings Release
• BG Group – Q4 & Full Year 2013 Earnings Release
• TalkTalk Telecom Group – Q3 2013/14 Interim Management Statement

 

Wednesday –

• GlaxoSmithKline – Q4 Earnings Release

 

Thursday –

• Smith & Nephew Q4 2014 Earnings Release
• Enterprise Inns – Interim Management Statement
• Londonmetric Property – Q3 Interim Management Statement
• TUI Travel – Q1 2014 Earnings Release
• Grainger – Interim Management Statement
• AstraZeneca – Full Year 2013 Earnings Release