Leading central banks mould investor sentiment

Monday, January 12, 2015

Significance

In the worst start to a year for US equities since 2008, the benchmark S&P 500 index fell 0.7% during the week ending January 10. December's employment report showed US non-farm payrolls rising by a robust 252,000, but average hourly earnings declined, accentuating deflationary fears. The dollar continued to strengthen against the euro on concerns about a possible euro crisis over Greece and the introduction of sovereign QE by the ECB. With the US Federal Reserve preparing to raise rates, investor sentiment remains fragile.

Impacts

  • The tug-of-war between central bank largesse and country-specific, geopolitical and economic risks will become more intense.
  • Markets will focus on renewed fears of 'Grexit' and on concerns about German opposition to an ECB sovereign QE programme.
  • The relentless oil prices slide, exacerbated by the dollar's strength, will put further strain on EM assets.
  • The ruble is likely to weaken further, increasing the scope for contagion to other developing economies.
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