Turkey’s bilateral action on interest rates calms market nerves whilst the countdown begins to the FOMC policy announcements

Jan 29 • Mind The Gap • 1821 Views • Comments Off on Turkey’s bilateral action on interest rates calms market nerves whilst the countdown begins to the FOMC policy announcements

shutterstock_172463003It’s easy this central bank governing thing isn’t it? Economy needs a turbo boost? Start the engines of the printers and create massive amount of liquidity to give the banks by purchasing their..ahem..’assets’ that they want out of. They’re then free to play more of the games that caused the system to nearly have a terminal coronary in 2007.

Is your domestic currency looking weak and under attack? No problem. Just increase your base rates, by up to double, that’ll solve it. The only other missing ingredient to the actions we’ve pointed out is the reams of press release type narrative, masquerading as clever joined up policy that needs to accompany such decisions and actions.

Anyhow before we move onto other news let us remind our readers that this evening, at 7pm UK time, the USA’s FOMC will publish its decisions on base rates and monetary easing. As we’ve explained many times and gone to great lengths to explain why, tighten your stops, you don’t have to be in the market when the news breaks and you might want to consider trading the reaction to the news and not the news.

Shares jumped in Asia overnight after the Turkish central bank stunned the markets with a huge hike in its borrowing costs late last night, in a bid to protect its currency. Japan’s Nikkei posted its biggest jump in five months, up 403 points or 2.7% as traders showed optimism that the rising alarm in the emerging markets could be controlled. This follows the drama at midnight Ankara time (10pm GMT), when Turkey’s central bank showed its determination to prevent the lira crashing further. After an emergency meeting, it stunned many analysts by hiking its overnight lending rate to 12%, up from 7.75%, and more than doubled its overnight borrowing rate to 8%, from 3.5%.

In the UK house prices are becoming a subject that’s on the lips of every ‘aspirational’ middle class, latte sipping house price obsessive once again. Prices are up 8.8% year on year according to the Nationwide, a building society lender in the UK. The only roadblock that can stop the exponential rise this year is probably the stricter lending rules coming in around April.

Finally German business confidence is up, according to the GFK reading of 8.2 from 7.7 previously. With imported prices falling substantially, according to data yesterday from Germany’s official stats supplier, this year could be developing into a boom year for Germany and what’s more it’ll be the right kind of balanced growth, unlike the UK which appears to be based on consumer debt…

Monetary developments in the euro area

The annual growth rate of the broad monetary aggregate M3 decreased to 1.0% in December 2013, from 1.5% in November 2013.1 The three-month average of the annual growth rates of M3 in the period from October 2013 to December 2013 decreased to 1.3%, from 1.6% in the period from September 2013 to November 2013. Regarding the main components of M3, the annual growth rate of M1 decreased to 5.8% in December 2013, from 6.5% in November. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) was more negative at -1.8% in December, from -1.5% in the previous month.

UK House prices continued to rise in January

The housing market is continuing to gather momentum on the back of further solid gains in employment, record low mortgage rates and rising confidence. House prices recorded their thirteenth successive monthly increase in January, rising by 0.7% on the month. The price of a typical home was 8.8% higher than January 2013. There have been encouraging signs that activity levels in the housing market are also gradually returning towards more normal levels. According to HMRC, the total number of housing transactions increased to 103,000 in December, 30% higher than the same month in 2012.

German consumer climate gains momentum

Findings of the GfK Consumer Climate study for Germany for January 2014 Nuremberg, 29 January 2014 – The mood of German consumers was notably buoyant at the start of 2014. Both economic and income expectations as well as willingness to buy improved, in part quite considerably. Following a revised value of 7.7 points in January, the overall indicator is forecasting 8.2 points for February. Germans consider the domestic economy to be clearly on the upturn at present. This is reflected in the fifth consecutive improvement in economic expectations.

Market snapshot at 10:00 am UK time

Equity markets across Asia-Pacific rallied after emerging market central banks led by Turkey and India took action to battle inflation and currency weakness and that positive rally and sentiment has been joined by Europe’s major indices in this morning’s trading session. The ASX 200 closed up 1.03%, the CSI 300 up 0.37%, the Hang Seng up 0.82%, the Nikkei up 2.70%. The Istanbul 30 index is up 2.11%, after the monetary policy tightening policy instigated by the Turkish central bank – doubling the overnight rate to ten percent. Euro STOXX is up 0.97%, CAC up 1.07%, DAX up 1.15% and the UK FTSE up 0.92%.

In a nod in the direction of the FOMC meeting announcement later today the DJIA equity index future is currently up 0.45%, the SPX future is up 0.48%, NASDAQ future is up 0.63%. NYMEX WTI oil is down 0.24% at $97.18 per barrel, NYMEX nat gas is down 1.09% at 4.98 per therm. COMEX gold is up 0.22% at $1252.00 per ounce, with silver at $29.52 down 1.38% per ounce.

The Federal Open Market Committee will cut purchases of Treasury and mortgage debt for a second time, from $75 billion to $65 billion a month, as it concludes a two-day meeting today, according to Bloomberg’s survey of economists on Jan. 10th. The central bank will scale down the program by $10 billion each meeting thereafter to end the purchases this year, the analysts forecast.

Forex focus

The yen slid 0.3 percent to 103.27 per dollar early in London from yesterday, extending a 0.6 percent loss from the previous two days. It fell 0.3 percent to 141.12 per euro. The dollar was little changed at $1.3666 against the 18 nation shared currency. The franc sank 0.2 percent to 89.93 centimes per dollar.

The Turkish lira jumped 3.1 percent to 2.1825 per dollar, adding to a two-day, 3.7 percent advance. It touched a record low of 2.3900 on Jan. 27th.

The Aussie added 0.2 percent to 87.96 U.S. cents, while the kiwi strengthened 0.3 percent to 82.81 U.S. cents. The Korean won jumped 0.6 percent respectively versus the dollar. South Korea today reported that the annual current-account surplus widened to a record and factory output beat estimates.

Japan’s currency weakened for a third day versus the dollar before the Fed ends a two-day meeting amid forecasts it will reduce stimulus that’s devalued the greenback. The lira advanced for a third session after Turkish policy makers doubled the main interest rate at an emergency late-night meeting in Ankara. Australian and New Zealand dollars gained along with the currencies of South Africa and South Korea. New Zealand’s central bank decides its policy tomorrow.

Bonds briefing

The yield on the benchmark 10-year note climbed three basis points, or 0.03 percentage point, to 2.78 percent early London time. It fell to 2.70 percent on Jan. 24th, the lowest since Nov. 26th. The price of the 2.75 percent note due in November 2023 fell 1/4, or $2.50 per $1,000 face amount, to 99 6/8. Treasuries fell for a third day amid a Federal Reserve meeting analysts said will see policy makers further cut bond-purchase stimulus measures, and after Turkey’s central bank took steps to stabilize the lira.

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