What I’m Watching This Week – 27 Jan 2014
A double whammy helped trigger a selloff in equities last week. Weaker-than-expected manufacturing data from China helped fuel concerns about the global impact of potential additional Fed tightening next week and a stronger U.S. dollar. Some lackluster earnings reports didn’t help, though profit-taking in the wake of last year’s strong rally also could have been a factor. After declines in several emerging-market currencies, the Dow and S&P 500 dropped below their 50-day moving averages; the Dow lost 318 points on Friday alone. The NASDAQ, the small caps of the Russell 2000, and the Global Dow joined them in negative territory for the year. The global jitters had investors seeking the relative safety of Treasury bonds as the benchmark 10-year yield fell for the fourth straight week.
Last Week’s Headlines
Global markets became concerned about the potential implications of a tightening in China’s monetary policies after a survey showed that the manufacturing sector there contracted in January for the first time in six months. The Markit/HSBC Purchasing Managers’ Index dropped to 49.6 from 50.5 (anything below 50 represents contraction).
After three months of declines, sales of existing homes rose 1% in December, according to the National Association of Realtors®. Even better, the NAR said sales for all of 2013 were higher than they’ve been in any year since 2006, and were up 9.1% from 2012’s annual figure.
The Argentinian peso joined several other emerging-market currencies in declining last week. The Argentine government devalued the country’s currency in an attempt to stimulate growth, but other currencies, including the Turkish lira and the Indian rupee, have suffered recently because of fears about the global impact of future tighter monetary policies.
The International Monetary Fund raised its forecast for global economic growth this year by 0.1% to an annual rate of 3.7%, saying that projected U.S. growth of 2.8% in 2014 will be extremely important to that forecast.
Eye on the Week Ahead
The whole world’s watching: Wednesday’s Fed announcement–Ben Bernanke’s last as chairman–could include further cuts in the Fed’s bond purchases and have repercussions in global markets. Also on tap are more earnings reports, the first look at Q4 economic growth, and data on the U.S. housing market, manufacturing, and personal spending.