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Prospects Daily: Global stocks mixed as tapering begins,Turkey’s markets come under pressure

Global Macroeconomics Team's picture
Financial Markets…The path of global stocks was somewhat mixed on Thursday following the Federal Reserve’s decision to start to reduce its massive stimulus program.  Developed-country stocks rallied with Japanese and European shares posting big gains amid the Fed-inspired stock rally.  In contrast, U.S. equities opened slightly lower in morning trade session, after both the S&P 500 and the Dow reaching record highs overnight, as investors gauged a mixed set of data, including U.S. existing home sales and weekly jobless claims and took some profit gains.  Meanwhile, developing-country shares fell slightly, with the benchmark MSCI Emerging Market Index sliding 0.3%, led by declines in Chinese, Indian, and Turkish shares.  But some of developing-country stock markets reacted well to the Fed’s move to cut stimulus, including Brazil, South Africa, and Russia.  Today’s relatively calm reaction from emerging markets may suggest developing countries seem to be in better position to withstand this shift in Fed policy than they were during the summer sell-off.  It also reflects the market might have already priced in on the expectation of Fed’s QE tapering this month.

The dollar traded at near fiver-year high against the yen in early Thursday session after the Federal Reserve announced its first reduction in its bond-buying program that is seen as debasing the U.S. currency.  The greenback also rose to the highest level in almost two weeks versus the euro.  The dollar climbed to as high as 104.36 yen, the strongest level since October 2008, before retreating 0.1% to 104.15 yen amid weaker U.S. housing and job data.  The greenback gained 0.2% to $1.3656 per euro after climbing to as high as $1.3650 earlier, the highest level since December 6.  Meanwhile, Fed’s tapering move also sent the benchmark 10-year note yield to a three-month high 2.95% in earlier trading.

High Income Economies…Taking the first step toward unwinding the unprecedented stimulus, the U.S. Federal Reserve will cut its $85bn monthly bond-buying program. From January, the central bank will cut its purchases by $10bn to $75bn.  Purchases of Treasuries will drop to $40bn from $45bn, and that of mortgage-backed securities will hoover up $35bn of instead of $40bn.

U.S. first-time jobless claims unexpectedly climbed to 379,000, an increase of 10,000 from the previous week's figure of 369,000. The revised figures showed an increase of 64,000 in the previous week.  The less volatile four-week moving average rose to 343,500, an increase of 13,250 from the previous week's revised average of 330,250.   Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also jumped to 2.88 million in the week ended December 7th from the preceding week's revised level of 2.79 million.

According to preliminary estimates, Ireland’s GDP increased 1.5% (q/q sa) in Q3.  The latest more-than-expected growth is the fastest since 2011 Q1 and came on the back of stronger consumer spending and business investment, but weaker exports.  In addition, Q2 GDP growth, when Ireland left recession, was upwardly revised from 0.4% to 1.0%.  On an annualized basis, GDP 6.1% (q/q saar) in Q3, compared to 4.2% for Q2.

Japan's leading economic index, a measure of aggregate economic activity, rose to 109.8 in October from 10.9.1 in September. The preliminary reading for October was 109.9.  The coincident economic index, which measures the current economic situation, improved to 110.4 from 108.6.  The lagging index, a gauge of the past performance of the economy, slipped slightly to 112.9 from 113.6.

Meanwhile, Japan's all industry activity index, following a 0.5% (m/m) increase in September, fell 0.2% in October, indicating that industry activity declined for the first time in four months.  Tertiary industry activity contracted 0.7% in October, following a flat reading in September.  Industrial production increased 1.0% after a 1.3% gain in September.

Developing Economies…Europe and Central Asia: Turkey’s markets came under pressure on Thursday following the US Federal Reserve’s announcement to begin scaling back its monthly bond purchases in January 2014. The Turkish lira fell against the US dollar, weakening to 2.079, its highest level since reaching 2.085 in early September; the yields on Turkey’s 10-year bonds rose to 10.08%, up from 9.74%; and Istanbul’s benchmark stock index fell nearly 4% in mid-afternoon trading on Thursday. 
Latin America and the Caribbean:  Brazil’s unemployment rate fell unexpectedly for the second consecutive month to the record low of 4.6% in November, down from 5.2% (m/m) in October and from 4.9% (y/y) a year ago.  The consensus forecast was for the unemployment rate to edge up to 4.9%.  The November reading matched Brazil’s lowest unemployment rate which was recorded in December 2012.  The number of unemployed persons fell 10.9% from October to 1.1 million in November, while the number of employed remained stable at 23.3 million.
Mexico’s retail sales contracted for the third consecutive month in October, decreasing 1.1% (y/y).  However, the rate of contraction eased compared with the 4% (y/y) contraction recorded in September, and was lower than the consensus forecast of a 2% (y/y) contraction in October.  Month-on-month, retail sales advanced 0.8% in October, rebounding from a 0.4% contraction in September.