Emerging markets are the new bogeyman. Having survived the credit crisis, the eurozone debt crisis and tapering from the Fed, we must now brace ourselves for an emerging market currency crisis.
Any sudden moves from the South African rand or the Turkish lira sends stocks sliding. Traders don’t want to take risks when it comes to the international banking system, and traditional safe havens like gold and the US dollar are in demand. Banking stocks in particular have taken a pounding as traders prepare themselves for more intervention from emerging market central banks.
Uncertainty drags US markets lower
US equities have opened lower, in line with global markets. There is one thing which investors dislike and that is uncertainty - while stocks crumble, the volatility (fear) index soars. However, Google is bucking the trend despite reporting a mixed set of results after the closing bell last night; EPS missed analysts’ expectations while revenues topped estimates. Supermarket giant Walmart lowered its full year earnings, blaming a decline in the number of government food stamps and tough weather conditions.
Safe haven assets in demand
Gold is creeping higher as nerves are getting the best of traders; the exodus from equities is boosting the precious metal. Copper is relatively quiet as its largest market is closed due to Chinese New Year. This is probably good news for the red metal given current US dollar strength.
The US dollar is the darling of the currency market as traders are all aboard the flight to quality. They will be staying buckled in until the currency war is over.