OVERNIGHT MARKETS ROUND UP – 26/01/2014

Global indices are in the midst of the most volatile period for equities in quite some time, spurred on by a crash – and now recovery – 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. Before this week’s rebound, the 20 most-traded emerging currencies had 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. 

The recovery has been led by the Turkish Lira with the currency registering its biggest jump since 2008. South Korea’s won jumped the most in four months, spurred by a record current-account surplus, while the yen weakened versus all 16 major peers. The lira has rebounded 10 percent from a record-low 2.39 per dollar reached on Monday, almost erasing this month’s decline. The central bank raised the one-week repurchase rate to 10 percent from 4.5 percent late yesterday at an emergency policy meeting to support the currency. 

Federal Reserve policymakers are set to meet tonight with market participants expecting the central bank to reduce stimulus by a further $10 billion this month. Whilst the Fed have not confirmed this, economists at this stage believe purchases will be cut by $10 billion at each of the next six FOMC meetings, with the program ending no later than December. This comes after the Central Bank announced its first bout of cuts to stimulus last month amid falling unemployment and improving data.