Turkey’s Central Bank Takes Bold Moves To Offset Sell Off In Emerging Nations

Asian markets climbed this morning after Turkey stunned investors with a huge hike in interest rates late yesterday stirring hopes the drastic action would short-circuit a vicious cycle of selling in emerging markets and revive risk appetite generally.  Turkey’s central bank raised all its main interest rates at an emergency late-night meeting in an effort to shore up the lira, resisting government pressure and reversing years of policy aimed at stoking growth. The bold move even managed to overshadow the US Federal Reserve’s meeting which ends tonight, at which it is widely expected to trim its asset buying program by another $10 billion a month. These expectations have renewed pressure on emerging economies. Meanwhile, data from the US showed that rising household spending and exports likely pushed the economy ahead at a decent clip in the fourth quarter, building a foundation for stronger growth this year. Expectations are that the GDP probably grew at a 3.2% annual rate. While that expansion would be a step back from the third quarter’s brisk 4.1% pace, its composition is expected to be healthier. Another set of data showed that Britain’s economy grew last year at its fastest rate since the financial crisis, raising questions about how long the Bank of England can keep interest rates at a record low. The economy grew 0.7% QoQ from October through December. Growth for the full year rose to 1.9%. The pound climbed to trade at 165.81 and eased this morning as the US dollar climbed ahead of the decision from the FOMC. The GBP is trading at 1.6575.  On Tuesday euro zone banks borrowed enough cash from the European Central Bank to keep overnight money market rates subdued and quell speculation of imminent monetary policy easing. Investors have paid increased attention to the ECB’s cash injections this year as some small take-ups have pushed overnight bank-to-bank borrowing rates above the central bank’s benchmark 0.25% refinancing rate. The euro remained well within its current trading range but eased on Wednesday morning by 16 points to trade at 1.3655.

On the other hand, due to appreciation of USD index, the JPY currency has reversed and trading weak above 103. Japanese exporters led by Toyota Motor Corp. are set to report higher third-quarter profit as a weaker yen fuels the country’s longest stretch of earnings growth since 2007. Likewise, pound sterling and the euro currencies are mostly trading stable so possibly USD performance would have to be watched carefully especially when the two day’s FOMC meeting is in progress. Today, Fed will announce its asset purchase programme status and likely that it may hold at $75 billion and keep the benchmarked interest rate unchanged. However, investors across the globe are little cautious about any surprises as at one side the US employment condition has improved while some of the other economic activities are still at a blend.

President Barack Obama offered modest steps to chip away at the country’s economic and social challenges in a State of the Union address that reflects the limits of his power to sway Congress.

Most notable were his push to raise the minimum wage level in the US. Other US data yesterday showed that Confidence among U.S. consumers unexpectedly climbed to a five-month high in January as optimism about the economy and labor market improved. Home prices in 20 U.S. cities rose in November from a year ago by the most in almost eight years, providing a boost to household wealth.  Orders for long-lasting equipment unexpectedly slumped in December by the most in five months, indicating companies are less sure than households that the U.S. economy is strengthening