3 Stories in the global economy that should not go un-noticed
Weighed down by mixed earnings results, profit-taking and extreme volatility in many emerging markets, U.S. stocks capped off their worst week since 2012. Consumer discretionary stocks were among the hardest hit after disappointing earnings reports from several retailers. The S&P 500, now down more than 3% year-to-date, fell below its 50-day moving average on Friday for the first time since October.
The Federal Reserve is holding its two-day meeting on Tuesday and Wednesday of this week. It will mark Chairman Bernanke’s last meeting before handing over the reigns to new Fed chief Janet Yellen on Feb. 1. Despite last month’s weak jobs report, most economists expect the Fed to continue the tapering process set into motion at the December meeting, thereby reducing the Fed’s monthly asset purchases by an additional $10 billion a month (from $75 to $65 billion).
For the week, the S&P 500 lost 2.63%, the Dow fell 3.52%, and the MSCI EAFE (developed international) dropped 1.99%.
Here are the 3 stories this week that rose above the noise:
China Loses its Allure
The Economist has an interesting look at how the business environment in China is getting much more challenging for multinational firms. After decades as an easy driver of growth, foreign companies operating in China now face the headwinds of slowing growth, rapidly rising wages, and even greater government scrutiny including a sweeping consumer-protection law that is coming in March. These challenges are likely to make achieving profitable growth out of business operations in China much more difficult in the coming years than it has been over the past decade.
Emerging Market Currencies: A Well-thought-out Crisis
A recent CNBC article examines the slide in emerging-market currencies, arguing that the trend is not new, as foreign-exchange markets have been pricing in the Fed tapering of its bond-buying program since May 2013. Interestingly, the declines have been quite orderly, as the currencies that have depreciated the most have generally been those with the worst fundamentals based on current account situations. Given the sharp drop, some contrarian investors think that buying opportunities may now exist, with Indonesia and Korea being two countries specifically mentioned.
New U.S. Home Sales Drop 7%, Miss Estimates
New home sales dropped 7% in December to an annualized rate of 414,000 units, below the consensus estimate of 455,000 and the second consecutive month of declining sales. Severe weather in many parts of the country was largely to blame for the significant drop in new home sales. Despite the weak finish for the year, 2013 was the strongest year for new home sales since 2008. Additionally, December’s new home sales were 4.4% higher than one year ago and the average price of a new home increased 8.4% in 2013 to $265,800, the largest increase since 2005.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
