Dow Drops as Emerging Market Turmoil Hits Global Equity Markets

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Financial Spreads: Spread Betting and CFD Trading

Stock Market Trading

: 31 January 2014

Caution and confusion continue to plague the markets this morning, suggesting that we will see a flat to marginally lower start for stocks in Europe.

Although concerns over the emerging market rout have subsided, and the post taper fallout wasn't the feared blood bath that some had expected, there are still fears that it's a powder keg waiting to go off.

With the pull back on hold and a lack of bullish trading news, investors could be stuck in limbo until new information comes to market or someone decides that they can't risk holding their positions over the weekend.

In the US, GDP figures came in largely in line with the estimates, hitting 3.2% in the fourth quarter.

In addition, consumer spending, the main driver of US economic growth, climbed by 3.3%, the most in 3 years.

And if that wasn't enough, corporate earnings continued to beat expectations.

The positive data trumped concerns that investors are pulling money from emerging market currencies, pushing the Dow Jones 73 points higher to 15,820.

Stock Market Trading

: 30 January 2014

Growing weakness for emerging market currencies spurred a sell off in equities across the board during the first part of yesterday's trading session.

This saw the Dow Jones resume its slump, losing 192 points to close at 15,748.

Later on, the Fed decided to persist with tapering, cutting another $10 billion from its monthly stimulus program.

Whilst the Fed's move was widely expected, the act fuelled investor jitters overnight, particularly once the final release of the HSBC Chinese Manufacturing PMI came in a tad weaker.

As a result, European equities are set to open marginally lower, however, in comparison to the Asian declines, the European losses are expected to be fairly minor.

Whether that's because cooler heads are prevailing or the money that's flowing out of emerging markets needs a home once it's repatriated back to developed markets is another question.

Stock Market Trading

: 29 January 2014

Unusually before an FOMC statement, European shares are set to rise sharply on the open this morning.

The normal fence-sitting won't be happening today, but not because of some rumour or off-the-cuff remark from a Fed member.

Instead, Turkey's attempt to quash it's own currency troubles have steadied the recent fears of an emerging market rout after the Turkish central bank hiked interest rates by 4.25% overnight.

Asian markets and index futures have all reacted positively and the wave of positive sentiment is expected to still be intact when it hits European shores.

Whether other emerging markets follow suit or the optimism can survive another expected $10 billion of tapering tonight is another question, but for now fears that an emerging market collapse would drag western economies down seem to have subsided.

Ahead of the FOMC policy meeting, consumer confidence in the US surpassed estimates by rising to 80.7 and helped eclipse the disappointing durable goods orders.

In addition, investors remain optimistic that an overall better than expected corporate earnings season will make a second round of tapering more likely.

Thus the Dow Jones recovered from a nasty two day sell off, gaining 100 points to close at 15,939.

Stock Market Trading

: 28 January 2014

European equities are set to open flat as traders steady their nerves.

Overnight, the PBoC added yet more liquidity to their banking system to head off a possible credit crunch.

Whilst this could be taken as a positive step to quell concerns, some may see it as confirmation that there really is something to fear.

Despite the current uncertainty, it seems that markets have gained a little composure after the recent sell off.

However, this is probably just a truce between the bulls and bears until after the FOMC statement, at which point we should expect battle to resume.

On the economic front, today's UK Q4 GDP is the biggest piece of data out in the morning.

Expectations of 0.7% growth seem to be priced in, so whilst we can expect a grinning George Osborne to be splashed around the media, markets may be less moved unless there's a big difference from consensus.

With fears over a slowdown in the Chinese economy and the Fed's plans to continue tapering, US equities did not manage to post a rebound from the previous session's plunge.

Investors were still assessing whether we are at the start of a more serious correction, with the Dow Jones remaining on the back foot and losing 31 points to 15,838.

Stock Market Trading

: 27 January 2014

Traders have had the weekend to fret about what is going on in the global economy and the verdict is decidedly negative, with European equities looking set to open sharply lower.

The minor tremor that started from last week's HSBC Flash Manufacturing PMI was amplified as it reverberated around the globe.

Traders are on the defensive as the final figure comes out on Thursday and, perhaps more importantly, the broader official figure comes out on Saturday, which had only just been clinging onto the expansionary line.

Nevertheless, this week's FOMC meeting will be of more immediate concern.

This may see the rout in emerging markets go up a level as the consensus is that the Fed will continue to roll back its tapering program; irrespective of the gyrations in the markets.

If they do reduce bond purchases by another $10 billion, we will certainly see Ben Bernanke go out with a bang as the markets may overreact, with traders speeding up the tapering timeline and pricing in the whole thing immediately.

Until then, expect nerves to get the better of traders and spread trading markets to stay under pressure.

The fresh signs of a slowdown in Chinese manufacturing spurred concerns that emerging markets are in for a tough year.

At the same time, the US corporate earnings reports did not entice investors to remain long of equities.

After last year's decent stock market performance and indications that more tapering is on its way, participants seemed to be in the mood to take profits on Friday.

As a consequence, we saw a sharp sell off in the Dow, with the index losing 339 points to 15,869, which now suggests a negative short-term outlook.

By Jonathan Sudaria, 31 January 2014

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