Market Commentary: Emerging market stocks fall after US economic growth surprise

US

Gross domestic product surprised on the upside as it rose at a 4 percent annualized rate after a disappointing 2.1 percent in the first quarter of 2014. Economists were expecting growth at around 3 percent. The reactions from the US stock market was subdued as optimism regarding an improving economy was balanced by weaker earnings and the increasing probability of the Federal Reserve moving forward the timing for an interest rate increase.

The S&P 500 Index climbed just 0.1 percent while the Dow Jones slid 0.2 percent. Twitter grabbed attention yesterday as it soared 20 percent as World Cup related demand helped the company double its revenue.

Emerging Markets

Emerging market stocks fell after the US economic growth surprise. The Federal Reserve may thus start its reversal of its aggressive monetary stimulus earlier than previously expected. Stocks fell in Brazil, Poland and South Africa.

Argentina has been declared in default by Standard & Poor’s after the government missed a deadline for paying interest on $13 billion of restructured bonds. The consequences of the default are not predictable and may take time to develop.

Asia

Asian stocks also fell as concerns about geopolitical tensions and the timing of US interest rate hikes influenced market participants. Samsung dropped 3.7 percent as net income fell 18 percent. Nintendo declined 6.5 percent as demand for the Wii console dropped following the success of next generation consoles form Sony and Microsoft.

Europe

Banco Espirito Santo SA said that it needs to raise capital. Shares have slumped 42 percent as three companies linked to the Espirito Santo Family requested protection from creditors.

Both the UK FTSE 100 and the Euro Stoxx 50 opened slightly positive. Adidas AG lowered its profit forecast, while Enel SpA and Royal Dutch Shell reported better than expected profits. The European Union froze assets of more Russian oligarchs as part of an increase in sanctions against Russia. Further industry wide measures are expected.

Commodities

Iron ore is heading for the biggest monthly increase this year as Chinese imports appear to be improving. China said this month that gross domestic product grew 7.5 percent in the second quarter year on year. China accounts for over 67 percent of the global seaborne iron ore demand.

Crude oil dropped for a fourth day as the West Texas Intermediate dropped below $100 as US stockpiles increased and demand from the US declined. Last week gasoline supplies rose the most in six months to the highest level this year fueling concerns that demand is slowing. The market appears to be shrugging of concerns of geopolitical tensions in oil producing regions as global supplies appear to be adequate and global demand seems to be declining.

Gold traded 15 percent lower than a year earlier, as the metal heads for it longest drop in 2 months following improvement in the US economy. Positive US economic data is good for the dollar but bad for gold. The risk trade still exists due to geopolitical concerns but the long term price will depend on the strength of the US dollar.

This article was issued by Calamatta Cuschieri, visit www.cc.com.mt for more information.

The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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