Forget about the NASDAQ trading suspension. The big story of last week was (and will continue to be this week), emerging markets. During a slow summer week, attention turned away from the US and towards India, Indonesia, Turkey and Brazil. These once-sizzling markets are suffering large currency declines, which have prompted many of their central banks to announce intervention efforts to prop them up.
Guess who’s to blame for the foreign fiasco? Yes, the US central bank chief Ben Bernanke is the goat once again. Emerging markets had been big beneficiaries of the Fed’s low interest rate policies since the financial, as yield-hungry investors sought better opportunities than the zero percent US environment. So in May, when Bernanke said that the Fed might taper its bond purchases, it also meant that many of those emerging market investors would yank their funds and return to the US.
Indeed, many have had enough of the international roller coaster. Since the beginning of June, retail investors have withdrawn $18.1 billion dollars from emerging market bond funds, about one-third of the amount they had put in since the era of low interest rates began since the financial crisis (WSJ). Adding to the pain, institutional investors have pulled about 10 percent of their pre-crisis investments. The anxiety is seeping into all global markets. Last week, stock exchange-traded funds and global equity funds saw their first net outflows in eight weeks and the largest in five years.
Chances are, the nerves will persist until the Fed pulls the taper trigger, perhaps as early as the mid-September meeting. Until then, investors who remain in town this week will keep an eye on the Durable Goods Orders report and the first revision to Q2 GDP, which most expect to increase to 2.2 percent from the originally-reported 1.7 percent. The strengthening economy would help the Fed’s case for tapering sooner rather than later.
MARKETS: US stock indexes were mixed on the week and many expect another low volume, pre-holiday week ahead.
- DJIA: 15,010, down 0.5% on week, up 14.5% on year
- S&P 500: 1663, up 0.5% on week, up 16.6% on year
- NASDAQ: 3657, up 1.5% on week, up 21.1% on year
- 10-Year Treasury yield: 2.82% (from 2.83% a week ago)
- Oct Crude Oil: $106.42, down 0.8% on week
- Dec Gold: $1395.80, up 1.7% on week
- AAA Nat'l average price for gallon of regular Gas: $3.54
THE WEEK AHEAD:
8:30 Durable Goods Orders
10:30 Dallas Fed Mfg Survey
9:00 S&P Case-Shiller Home Price Index
10:00 Consumer Confidence
10:00 Richmond Fed Manufacturing Index
10:00 Pending Home Index
8:30 Weekly Jobless Claims
8:30 GDP (2nd estimate)
8:30 Corporate Profits
9:00 Personal Income and Outlays
9:45 Chicago PMI
9:55 Consumer Sentiment