As February kicks off, investors are trying to erase memories of a weak start in January that witnessed a 5 percent decline in the Dow Jones, a 3 percent decline in the S&P, and a 2 percent decline in the Nasdaq along with increased volatility as the market braces for higher U.S. growth in 2014 and less monetary stimulus from the Federal Reserve.
Some of the biggest challenges to the market in 2014 appear to be coming from emerging markets which have already experienced a significant pullback in 2014.
Emerging market currencies saw broad based selling following the U.S. Federal Reserve’s decision to scale back the pace of their quantitative easing (QE) program in January at a pace of $10 billion per month and are under continued pressure as cheap global liquidity is drying up and investors are less willing to pursue high return yields in riskier emerging markets.
Central bankers in emerging market economies have responded by raising their interest rates.
Meanwhile, as new manufacturing data emerges out of China, there are continued signs pointing to slowing growth in the world’s second largest economy that still relies on outside investment.
Over the week-end China’s Purchasing Managers’ Index fell to a six month low of 50.5 in January from 51.0 in December.
The euro has fallen to its lowest level in 2 months after latest inflation data last week showed a record low, sparking concerns about the prospects of deflation in the euro-area.
The yen has declined to its lowest level in nearly two years ahead of a decision later next week by the Bank of Japan to extend monetary stimulus.
On Thursday Bank of Japan Deputy Governor Kikuo Iwata speaks to business leaders and will hold a news conference.
The Bank of England will meet on Thursday. Most economists are not expecting any interest rate changes.
Later this morning, ISM, construction spending, and car-trucks sales will be released.
On Friday the U.S. employment report will be released for the month of January which saw record cold temperatures across much of the country.
The Wall Street Journal reported over the week-end that Jos. A. Bank is in talks to buy Eddie Bauer.
* Seattle Seahawks won their first Super Bowl yesterday and dominated the Denver Broncos yesterday at the Met Life Stadium in New Jersey, winning 43-8.