OVERNIGHT MARKETS ROUND UP – 24/01/14

The growing Asian credit crisis continues to weigh on regional shares with the MSCI Asia Pacific index set to record its longest run of weekly losses in more than 18 months. The MSCI equity gauge lost over 1% in value last night, setting the index on course for a fourth weekly decline as signs of weakness in the Chinese economy refuse to fade. The Chinese government’s decision to inject funds into the economy saw money-market rates fall, possibly slowing the recovery. 

As well as Asian shares, global equities have broadly ended the week lower as uninspiring earnings coupled with concerns regarding cuts to U.S Fed stimulus remain firmly in the minds of investors.  There is a growing fear that Fed tapering may destabilise emerging market economies. 

Still driving the markets, the Federal Reserve tapering issue has dominated the minds of investors for some time and continues to provide volatility. Gold has retreated from a six-week high after its longest weekly rally since September 2012. Gold enjoyed bull market conditions for 12-years, spurred on by unprecedented bond buying, until Fed policy makers decided to taper stimulus in December 2013. Analysts expect the Federal Reserve to reduce asset purchases by $10 billion at each meeting to end the program this year. 

In a boost for the Eurozone, the business sector has had an encouraging start to 2014 with the private sector recovery in full swing. With France a notable exception, growth has started to pick up with Eurozone PMI jumping from 52.1 to 53.2. Any figure above 50 signals growth and this was the highest reading since mid-2011. An earlier composite PMI from France, the bloc’s second-biggest economy, showed activity contracted for the third month running in January. 

France President Francois Hollande has stressed the long road ahead for his citizens, warning that the toughest economic reforms are yet to come. Eurozone ministers are cautiously backing the President in what is somewhat of a last chance to redeem himself after receiving the worst opinion poll ratings of any post war leader.  It is not clear how and when he will pull off the public spending and tax cuts and it remains yet to be seen if French business will assist the government in its task to cut unemployment. 

On the other hand, Germany continues to go from strength to strength with the latest boost coming in the form of a AAA Credit Rating reaffirmation. Fitch have cited the management of national debt and a stable outlook as the main reasons for their decision. This comes after Standard and Poor reaffirmed their AAA rating who strongly believe that Chancellor Angela Markel’s reforms are paying dividends.