Daily Agenda: Investor Flight Continues from Emerging Markets

Concerns over China drag emerging market equities lower; JPMorgan beats on Q4 earnings; Renault said to be subject of emissions probe.


With the first two weeks of 2016 nearly over, investor sentiment for emerging market assets continues to be uniformly negative. The total decline for the MSCI Emerging Markets index during the first 9 trading days now exceeds 9 percent, while the Shanghai Composite Index has slid 12 percent during the period, even after a 2 percent rise today. Following a terrorist strike in Jakarta that left seven dead, the Bank of Indonesia today lowered its benchmark rate by 25 basis points to 7.25 percent, helping to stem early losses for the Jakarta Composite stock index. In China, yuan interbank lending rates continued to retreat from record highs as the PBOC appeared satisfied that the gap between offshore and domestic yuan valuations had closed sufficiently to exit the market for now. Market sentiment across emerging markets will closely follow policy actions by the People’s Bank of China in coming weeks and months. In a note to clients, Alex Wolf, the emerging markets economist at Standard Life Investments, wrote, “We have long argued that China’s economic transition and rapid pace of reform will increase the chance of policy mistakes.”

JPMorgan Chase earnings beat expectations. Fourth quarter financial results released today by New York’s JPMorgan Chase were stronger than consensus analyst projections, with earnings per share of $1.32 for the three month period on revenues of nearly $24 billion. The reason: stronger than expected results from investment banking and trading.

German GDP exhibits returning strength. Full year 2015 gross domestic product rose by 1.7 percent, according to data released today by Germany’s Federal Statistics Office as accommodative European Central Bank policy helped support consumption despite slack demand abroad. Private consumption expanded by nearly 2 percent in 2015, noted the report, as record low unemployment and falling fuel costs convinced more Germans to spend.

Renault sells off sharply on emissions testing news. Shares of French automotive giant Renault plunged in trading Thursday after labor union sources revealed a government investigation into emissions testing. Agents from the Economy Ministry’s fraud unit reportedly removed computers from testing facilities. Many investors have anticipated that other European automakers would be scrutinized following revelations of fraudulent emissions testing at Wolfsburg, Germany-based Volkswagen first surfaced in September 2015.

BOE leaves rates unchanged. The first policy meeting of 2016 for the Bank of England resulted in a widely expected 8 to 1 vote to leave benchmark rates at record lows. In the accompanying statement the bank’s policy makers cited low wage growth and depressed fuel costs as likely catalysts for inflation to remain muted. The sterling rose slightly versus the US dollar on the news.

Jobless claims rise for second week. Weekly initial unemployment benefit data released today by the Department of Labor rose by 7,000 to 284,000 –bringing the four week moving average for the figure since summer of last year. While too early to call a trend shift, rising layoff levels may be due to recent events in specific service industry segments according to some analysts.