Investors continued to sell positions in emerging economies and sent global equities on a downward spiral as they turned to traditional safe havens in overnight trading. US equities were poised to endure another day in a week of deep hits after Thursday’s walloping. Currency markets also reacted unpredictably.
Surprisingly, the Canadian dollar held strong overnight after falling to a 4.5 year low on Thursday. Encouraged by rising inflation, a chief concern of the Royal Bank of Canada, the Loonie lowered against the USD to C$1.108 after hitting C$1.1099 on Thursday.
Inflation in Canada climbed to 1.2 percent in December after striking 0.9 percent in November. Analysts had projected the rate rising to 1.3 percent but the momentum was encouraging. Core inflation did rise to 1.3 after November’s rise to 1.1 percent.
Canada still has unanswered and serious economic concerns. Investors captured profits overnight helping to bolster the currency.
Emerging Market Selloff
Argentina’s central bank failed to support the currency, igniting a massive selloff of the peso. The Argentine peso slipped 2.8 percent overnight. At the same time, the Turkish lira reached record lows at 2.33 to the USD. The central bank invested $2 billion to prop up the lira but to no avail.
As the cost of insuring against a default by Turkey rose to an 18-month high, the cost of insurance against a Ukraine default also reached new highs. Ukraine has been mired in an uprising since its announced rescue deal with Russia in lieu of solidifying its position with the EU.
The struggles by these emerging economies and others spilled over into all global equity markets. The MSCI index of emerging markets continued its October slide falling a hefty 1.4 percent as the MSCI global index of 45 international markets dropped 1 percent.
Importantly, emerging market debt funds recorded their 32nd week of outflows in the last 35 weeks. Lipper reported $200 million in redemptions across 250 funds.
By late-morning, US equity markets were heading south and fast. Adding to the emerging economic selloff were concerns about weakness in China and the increase of tapering expected by the Federal Reserve. The three concerns weighed on investors as they did in June 2013 when emerging markets endured an 18 percent hit. Analysts expect the emerging market selloff to continue. By noon, only four stocks in the DOW were trading positive.
The DOW fell below 16,000 the S&P 500 was off 1.27 percent and the NASDAQ lost 1.52 percent and the VIX was heading to its largest weekly gain since September 2011. End of day and end of week trends looked negative for US equities.
The Euro/USD was down .10 percent to $1.3680. Against the yen, the USD was off 0.98 percent to 102.98 yen. British sterling lowered against the USD to 1.64.96.
