News Column

Emerging markets retreat in favor of "safer" developed nations'' currencies - report

January 27, 2014

| KUWAIT , Jan 26 (KUNA) -- Emerging markets continue to suffer in the beginning of 2014 all the way from China dealing with its own shadow-banking debt, to Turkey with the Turkish Central Bank intervening in the foreign currency market to support the Lira, a specialized report showed Sunday. The report, issued by the National Bank of Kuwait , stated that the Turkish Central Bank intervention of USD three billion in an attempt to shore up its exchange rate which has been under continued pressure ever since the Central Bank refrained from raising benchmark Interest rates on January 21st . "All of these factors combined, pushed investors away from Emerging markets and into the "safer" British Pound (GBP), EUR, Swiss Franc (CHF) and Japanese Yen (JPY). The Euro closed the week near the high at 1.3678, while the Pound closed at 1.6482," reads the report. It noted that the main reason for the higher performance of the low yielding European currencies and the Yen, was the news out of Asia . Indeed, China's HSBC PMI (Purchasing Managers Index) coming below 50 at 49.6 disappointed the market who already had dire appetite for Asian risk taking as of late. Meanwhile in Europe , the latest PMIs were the data highlight, with the Eurozone composite rounding off a broadly positive set of services and manufacturing readings. In addition, the Swiss National Bank made the news asking banks to increase the capital amount they are required to have on hand to buffer against housing exposure from one percent to two percent. "This news out of Europe continue to impress with the Eurozone composite Purchasing Managers Index rounding off a broadly positive set of services and manufacturing readings. France beat expectations but still clearly acts a drag on the overall Eurozone recovery, while Germany outperformed," added the report. The report also disclosed that the Eurozone composite came at 53.2 beating expectations of 52.5, while the composite PMI reading implied a first quarter (Q1) GDP growth of 0.3 percent. In addition, the Euro zone current account numbers came above consensus at 27 billion, setting a new record surplus, thanks to a pickup in goods exports. Spain's success in issuing a EUR 10 billion bond was the highlight of the week, in what was the largest single bond sale that Spain has ever made, sending many Eurozone periphery bonds markets into multi-year lows. With regard to the UK economy, the report noted that Bank of England Mark Carney suggested in an interview that the Bank will come up with a new approach next month for signaling when it would be ready to raise interest rates. "Additionally, Mr. Carney dropped a heavy hint that the MPC would drop its threshold guidance framework based upon the unemployment rate reaching seven percent. We expect the unemployment rate to drop to the seven percent level in the data to be published next month, a week after the February Inflation Report," reads the report. In the US, Extended unemployment insurance benefits dropped for 1.32 million individuals on December 28, 2013 . "According to analysts, if these benefits are not reactivated, the unemployment rate is likely to fall significantly further in January, even beyond what the underlying economic fundamentals imply." With regard to Chinese economy, the report said that the HSBC China Manufacturing PMI (Purchasing Managers Index) fell to a six-month low of 49.6 in January, weaker than expected and down from 50.5 in December. "While China's Q4 GDP data released early this week surprised to the upside, this latest data suggests a softer start for the New Year. Moreover, it may raise some concerns of a repeat of 2013, when growth faltered in the first half of the year before stabilizing in the second half of the year," said the report. (end) fnk.fs.ibi KUNA 262116 Jan 14NNNN All KUNA right are reserved

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Source: Kuwait News Agency

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