''With yesterday’s sharp plunge in U.S. stocks and big rally in the safe-haven U.S. Treasury bond market, the increasingly panicky state of world markets has now become a global issue. The selling–driven last month by emerging-market investors in places such as Turkey–threatens to derail whatever positive forces were at work in the economic recoveries that had been evident in the euro zone, U.S. and Japan. The risk is that the wealth destruction does enough damage to business and consumer confidence that it causes people to put off their spending and investment plans''.
''One big question is how policy makers respond. The Federal Reserve totally ignored the mounting emerging-market crisis in its policy statement last week. Now we have a series of Fed officials’ speaking events with which to determine whether the fallout in the U.S. has caused them to adjust their expectations for the U.S. economy and, by extension, contemplate a pause in the steady process with which they are currently tapering the Fed’s bond-buying program''. (MC)
''WORLD MARKETS: After the Dow Jones Industrial Average plunged 326 points Mondayto post its biggest one-day decline since June, Asian markets went into a tailspin. The Nikkei 225 lost 4.1% on the day and benchmark indexes in Australia, South Korea and Hong Kong all fell strongly while the Japanese yen resumed the safe-haven role that it has played during much of the turmoil of January, driven by emerging markets. Surprisingly, European markets have fared much better. After opening sharply lower in sympathy with Japan, positive earnings news from banking behemoth UBS lifted equity investors’ spirits, especially in the all-important banking sector.
Eyes will now turn to the U.S. market. Although yesterday’s slide was directly attributable to a much weaker-than-expected report on the U.S. manufacturing sector, the way that investors responded raises concern about a much deeper malaise. For as much as analysts can keep saying that the trouble in emerging markets in Asia and Eastern Europe and elsewhere stems from country-specific, isolated economic problems, the entire global investment community does appear to have a case of the collective jitters. Market contagion can become a self-fulfilling process, feeding off itself in a domino-like effect that pays little to no heed to fundamental distinctions''. (MC, AM, MA)
Source: By Michael J. Casey, Alen Mattich and Michael Arnold WSJ Macro Horizons
