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U.S. Dollar Falls After Fed More Dovish Than Expected; NZ Dollar Soars

Here’s today’s ‘Just A Minute’ bringing you a 60 second summary of what’s happening in the financial markets:

Main Trading Event Of The Day: UK Retail Sales @ 08.30 GMT

WHAT WE’RE WATCHING TODAY

U.S. Dollar Falls After Fed More Dovish Than Expected; NZ Dollar Soars

The U.S. dollar fell to its lowest in nearly two weeks against a basket of major currencies after the Federal Reserve hinted at yesterday’s meetings that U.S. interest rates will stay low for a while. The latest economic projections suggested that the Fed sees rates rising more in 2015 and 2016 than it had previously forecast, but officials lowered their long-term rate target. The Fed also sounded comfortable with the inflation outlook despite recent signs of a pick-up in price pressure. After the meetings, the dollar slipped 0.3 percent on the day to 80.378, and fell as far as 80.353, a level not seen since June 9. Against the yen, the greenback was almost flat on the day at 101.91 JPY, down from a one-week high of 102.38 yen hit on Wednesday before the Fed’s announcement, while the euro was slightly lower at $1.3589 after it touched $1.3600 EUR on Wednesday. The Fed cut its monthly bond buying program by a further $10 billion to $35 billion in a widely expected move and expressed confidence that the economic recovery remained on track.

The New Zealand dollar soared to a record high against a basket of currencies after the Fed’s dovish stance, rallying nearly 1 percent to hover around six-week highs of $0.8736 NZD. The outlook for higher New Zealand interest rates was reinforced by data showing the economy grew a solid 1.0 percent in the first quarter from the previous quarter, a result that cemented New Zealand as one of the fastest-growing developed economies. The Australian dollar was steady on the day at $0.9404 AUD, having gained 0.7 percent on Wednesday.

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Eurozone: Is Deflation On The Horizon?

Professional services firm EY has warned that although the euro zone economy is set to grow in 2014, the threat of looming deflation in the region persists. The region will grow 1.1 percent this year, according to EY’s forecasts, followed by expansion of 1.5 percent in 2015. Growth is seen picking up pace between 2016 and 2018. Strengthening exports and a pickup in domestic demand will drive a return to modest investment growth but the recovery is likely to be felt more in some countries than others. The threat of deflation has been a key issue in European policymakers’ minds in recent months. The European Central Bank (ECB) announced measures to tackle the issue at its most recent policy meeting, including imposing a negative interest rates on banks for their deposits. Inflation in the euro zone rose by just 0.5 percent in the year in May, significantly below the ECB’s target of 2 percent. The inflation slowdown has been due to lower energy costs and increasing euro strength and there are now real concerns that inflation could turn to deflation, as firms start to bid down prices and wages in order to compete for orders. Deflationary pressures could have a knock on effect on consumer spending, just as confidence was starting to build. Exporters may also be in for another tough year as the euro remains stubbornly strong. The euro is currently trading around $1.35 against the dollar, down from peaks of $1.39 earlier in the year.

Emerging Markets: The Asset Class Of Choice?

Analysts are predicting that increasing comfort with the outlook for China’s economy will make emerging market equities the best performing asset class in the second half of 2014. Recent Chinese economic data indicates a stabilisation in the world’s second-largest economy, assisted by targeted stimulus measures. This is positive for emerging markets, many of which are dependent on exports to the mainland. May retail sales, for example, rose 12.5 percent on year, above analyst expectations for a 12.1 percent increase. While fixed asset investment rose 17.2 percent on year for the January-to-May period, just above expectations for a 17.1 percent rise. Emerging markets equities are up 3.9 percent year to date, slightly underperforming global stocks which have risen 4.1 percent, according to the MSCI Emerging Markets and MSCI World indices. India and Southeast Asian markets have been the biggest beneficiaries. Markets that were battered into 2013 are seeing a revival because of good policy from the central banks and economic momentum is not as poor as initially thought. Strategists at Coutts Investment Office, agree that emerging markets are the place to be.

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That sums up today’s highlights! Remember you can keep in touch with us throughout the day via Facebook, Twitter, Google+ and LinkedIn for all the latest trading news. We hope you have a profitable day on the markets.

 

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Emerging Markets In The New Year

The topic of emerging markets is always interesting, but it is one which is notoriously riddled with uncertainty. As developing economies have begun to emerge from the recession, this has quite often been at the mercy of emerging markets. China’s growth is expected to slow and economies with current account deficits such as Brazil and India are also vulnerable. There are, however, some specific markets which are thriving and which may present opportunities for investors. This article takes an overview of what happened with emerging economies in 2013 and what the future holds for the year ahead. Read more…

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The Bullish Retailers

Advancing Market Slump to Be Decade-Long According to Wall Street Banks

Advancing markets are not likely to recover quickly from the asset slump of last year that has left behind advanced-nation shares by the most since 1998, according to the biggest banks of Wall Street.

Goldman Sachs Group Inc. has been advising cuts as high as a third in developing nations investments, predicting “significant underperformance” for stocks, bonds, and currencies for the next decade. JPMorgan Chase & Co anticipates that local-currency bonds will post 10 percent of their average returns over a 10-year period, while Morgan Stanley expects the Brazilian real, Turkish lira, and Russian ruble will continue their decline after falling as much as 17 percent last year.

During the worst periods of the latest global financial crisis, the developing economies of Brazil, Russia, India, and China indicated their increasing power by delivering outsized returns, but as the U.S. Federal Reserve reduces its stimulus and allows interest rates to rise, Morgan Stanley expects some of the same developing nations to now prove laaggard. The MSCI Emerging Markets Index has dropped 3.2 percent this year, compared to the 1.3 percent decline of the developed-market index, and reached a four-month low yesterday as Chinese data indicated a weakness in manufacturing and services.

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morning-coffee

Living In A Material World?

Are we living in a material world? To a larger or lesser degree, the answer has to be ‘yes’ but it does seem that to what degree depends on where you live.

In a recent poll of 20 countries conducted by global market-research company Ipsos regarding their attitudes toward wealth and success, findings were that those in China were the most likely to equate success with material possessions, with 71 percent agreeing with the statement “I measure my success by the things I own.”

Perhaps it’s no coincidence that the next three countries were also large emerging markets, implying that people’s views may be shaped not only by culture, but by stage of national development: 58 percent of respondents in India agreed with the same statement, while 57 percent in Turkey and 48 percent in Brazil. In the more affluent US, the figure was 21 per cent.

People in China were also the most likely to say “I feel under a lot of pressure to be successful and make money,” with 68 percent agreeing. A separate global poll last year by U.K office-space company Regus, found that Chinese workers were also the most likely to report increasing stress levels over the past year.

Meanwhile, people in India were the most likely to be hopeful about their country as a whole over the next year, with 53 percent expressing optimism. Forty-six percent of people in China expressed optimism, well above the global average of 32 percent. The most pessimistic were those living in Spain, Italy and France, perhaps not surprisingly considering their recent financial woes.

So, does being well-off financially equate with success? That depends on how you measure your own personal success. What do you think?

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Gold charioteer

Gold Travels East on Lower-Price Path

Overall international demand for gold dropped 21 percent in the third quarters as both investors and central banks show reluctance in buying the metal, according to the World Gold Council.

The council announced in a report today that demand around the globe plunged to 868.5 metric tons, compared to 1,101.4 ton last year. Investors purchased 118.7 tons from ETFs and similar products, while central bank purchases fell 17 percent.

April of this year saw the gold market move into a bear, casing gold prices to drop 24 percent with inflations doubting the precious metal’s value as equity prices rallied against falling inflation levels.

If we isolate the Easter market, however, a different image emerges as gold demand jumped in China, India, and the Middle East in the 12 months to September against decreasing European sales. The World Gold Council mentioned that the difference in markets highlights the movement of the global bullion market form west to east.

Demand for jewellery, bars and coins jumped 30 percent in China to 996.3 metric tons, while in India gold experienced a 24 percent increase reaching 977.6 tons. On the contrary, demand in Europe slid 11 percent during the same period with marked drops in the U.K., France, and Switzerland. Moreover, the share of Global sales corresponding to Asia and the Middle East rallied to 68 percent from previously 65 percent over the 12 months, while the share from the European market fell to 8.3 percent from 11 percent.

With gold set for an annual decline. the first since 2000, bullion travels eastward attracting Asian investors with its lower prices as the Federal Reserve considers curtailing its financial stimulus amidst signs of an economic recovery for the U.S.

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sensex

Indian Sensex Record High

Indian (SENSEX) stocks climbed yesterday, sending the benchmark S&P BSE Sensex above its record closing high, with investors speculating an acceleration in the inflows of capital as company earnings exceed expectations.

State Bank of India helped 13 lenders reach a one-month high after the government announced that the bank is among 20 state-owned lenders to receive 140 billion rupees ($2.3 billion) to guard against bad debts. The greatest climb on the index was recorded by Tata Motors Ltd. (TTMT), owner of Jaguar Land Rover.

The Sensex rose 1 percent to 20,974.21 at 11:12 a.m. in Mumbai. The gauge increased as high as 21,039.42, surpassing the all-time closing high of 21,004.96 on Nov. 5, 2010. Foreign investors bought a net $15.2 billion of local shares so far this year as economists have postponed projections for when the U.S. Federal Reserve will begin reducing stimulus. All nine of the 30 Sensex companies that have reported results so far this season have shown profits that beat or matched estimates.

India’s equity strategists, who abandoned expectations for a record high in the Sensex on concern earnings growth will slow, found the rise surprising.

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