Two major factors have combined to impact trading today, the prospects for a consistent program of QE tapering from the Fed and renewed concerns about emerging markets. Central banks have gone 3 for 4 on tightening moves over the last 24 hours with central banks in turkey and South Africa announcing surprise interest rate hikes. Meanwhile, the Fed cut QE3 purchases by another $10 billion to $65 billion, essentially indicating that it intends to pursue a consistent tapering program at its meetings this year. The Fed decision to stay the course on tapering comes at a crucial time. A crisis of confidence in emerging markets has been growing and instead of shoring up confidence, the Turkish and SARB announcements added fuel to the fire as many took the moves to mean that some central banks are starting to panic, sending TRY and particularly ZAR sharply lower on the day. Consistency and stability from the Fed through its leadership transition and beyond may become particularly important as the year progresses. Because of this, it appears unlikely that the Fed would stray from this course unless something seriously bad were to happen domestically. The full $10 billion taper, by the way means that it does not expect debt ceiling negotiations to cause any financial disruptions. US and European indices have been trading lower through the day, a bearish omen for Asia Pacific trading. US indices tried to claw back some of their losses on short covering but bounces were short-lived in the face of a wall of selling. Gold, and other defensive havens like JPY and CHF, on the other hand, have been rallying today boosted by a flight to perceived safety on concerns that big interest rate hikes, particularly in Turkey, could make the problems that had been undermining their currencies even worse and potentially send their economies into recession. The stock market boost that came from the Indian and Turkish rate hikes quickly disappeared as knee-jerk reactions faded and traders had second thoughts. You know it’s one of those weeks when the only central bank to make a decision not to tighten in some way has been among the most openly hawkish of late, the RBNZ. The central bank indicated that although inflation pressures have eased a bit it expects them to rise again and indicated that it plans to start raising interest rates and normalizing monetary policy soon to keep a lid on inflation. NZD has been nose diving on this news as traders who had speculated on an early rate increase rushed to get back on side. With several markets closed Friday for Lunar New Year, we are seeing some economic indicators starting to come out earlier than usual. Chinese manufacturing PMI could attract some attention from traders looking for confirmation or rejection of the below 50 flash PMI from last week. This could impact China sensitive markets like AUD, copper, the Hang Seng, China A and S&P/ASX. Japanese retail sales and defensive flows could influence trading in JPY today. Corporate News It’s a busy afternoon for technology earnings with reports due from Facebook, Citrix, Qualcomm and Symantec. Economic News Significant announcements released overnight include: US interest rate decision 0.25% no change as expected US tapering decision $10B cut to QE purchases as expected US Treasury purchases $5B cut to $35B/month as expected US MBS purchases $5B cut to $30B/month as expected New Zealand interest rate decision 2.50% no change expected Turkey interest rate decision raised overnight rate to 12.00% from 7.75% Raised benchmark rate to 10.00% from 4.50% South Africa interest rate decision surprise 50 bps interest rate hike to 5.50%, no change had been widely expected Upcoming significant announcements include: 10:50 am AEDT Japan retail sales street 3.9% 12:45 pm AEDT China HSBC manuf PMI street 49.6 vs previous 50.5 8:00 am GMT Spain GDP street (0.1%) vs previous (1.1%) 8:55 am GMT Germany unemployment chnge street (5K) vs previous (15K) 8:55 am GMT Germany unemployment rate street 6.9% 9:30 am GMT UK mortgage approvals street 72K 1:00 pm GMT Germany consumer prices street 1.5% 6:00 am EST Brazil unemployment rate street 4.4% vs previous 4.6% 8:30 am EST US Q4 GDP street 3.2% vs previous 4.1% 8:30 am EST US Q4 PCE inflation street 1.1% vs previous 1.4% 10:00 am EST US pending home sales street (0.3%) 10:30 am EST US natural gas storage street (233 BCF)


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