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US Equities React Negatively to Turmoil in Emerging Market Currencies

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Today's financial recap and tomorrow's financial outlook.

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The Turkish central bank surprisingly hiked rates by 425bps last night to 12%, much more than many market participants had been expecting. The rate hike was done to arrest the decline in the Turkish lira and because the central bank is running out of FX reserves to intervene in the currency markets. The lira initially rallied significantly vs. the US dollar, but eventually gave back all of those gains and then some. The South African Reserve Bank also chose to surprise markets by raising its benchmark policy rate by 50bps to 5.5%. The South African rand actually sold off more than 2% in response.

US equities reacted negatively to the turmoil in emerging market currencies, losing more than 1%. The important support level of SPX 1,772 managed to hold, but the damage was done in the small caps. The materials sector was the only positive performer in the S&P 500 (INDEXSP:.INX) thanks to strong results from Dow Chemical (NYSE:DOW) and follow-through from steel stocks like US Steel (NYSE:X). Consumer-related stocks were hit the hardest.

The FOMC made its monetary policy decision at 2:00 p.m. EST today. As many had expected, the Fed decided to reduce its monthly asset purchases by an additional $10 billion to $65 billion. The cut was done equally to MBS and Treasuries. The Fed noted that economic growth is continuing at a modest pace, but not expanding faster, and that fiscal restraint has been diminishing. Equities initially did not have any great reaction, but ended up making new lows on the day before recovering near the close. Treasuries, gold, and the Volatility Index (INDEXCBOE:VIX) all rallied as investors sought safe-haven investments.

Tomorrow's Financial Outlook

Tomorrow morning will be a big day with the advance estimate of fourth-quarter GDP. Economists estimate that US real GDP will grow at an annualized quarterly rate of 3.2%, and personal consumption will show strong growth of 3.7%. Also set to be released is the weekly jobless claims data, which is set to remain near the 4-week moving average at 330,000. Lastly, pending home sales data will be released in the late morning with a 0.3% decline in monthly sales expected.

Elsewhere in the world, the final estimate of January manufacturing PMI in China will be released. The initial estimate saw manufacturing contracting for the first time since July of last year. Other data that is scheduled for release includes Japanese retail sales, eurozone consumer confidence, German CPI, and Germany's employment change for January.

Tomorrow is the busiest day of the week for earnings reports in the US. Fifty-seven companies are scheduled to report. Notable names include Exxon Mobil (NYSE:XOM), Harley-Davidson (NYSE:HOG), ConocoPhillips (NYSE:COP), Visa (NYSE:V), Time Warner Cable (NYSE:TWC), Under Armour (NYSE:UA), Chipotle Mexican Grill (NYSE:CMG), Amazon (NASDAQ:AMZN), Broadcom (NASDAQ:BRCM), Google (NASDAQ:GOOG), Blackstone (NYSE:BX), and Viacom (NYSE:VIA).

Twitter: @Minyanville

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