US jobs data may show strength, prompt stimulus end - Investors positioned for a strong U.S. jobs report, balancing the likelihood it will confirm the economy is recovering with wariness it might prompt the Federal Reserve to end its stimulus earlier. But coming just after Fed Chairman Ben Bernanke tried to ease concerns about an imminent tapering of its money-printing stimulus, a strong number could reignite some market volatility.
The prospect of an end to stimulus - which has pumped billions of dollars into world markets - has already battered some assets, notably in emerging markets. "The data in the US is picking up appreciably at the moment. It's all pointing to a better (jobs) number today and bond markets should be scared," said William Hobbs, head of equity strategy at Barclays Wealth.
The payrolls report is forecast to show an increase of 184,000 in jobs outside the farm sector last month and the jobless rate dropping to 7.5 percent from 7.6 percent, according to a Reuters poll. The unemployment rate is closely monitored by the Fed as it gauges when to cut back its USD 85 billion a month bond-buying program.
Japan says GDP growth could slow to 1 percent after sales tax hike – Japan's economic growth will slow to 1.0 percent in fiscal 2014/15, less than half the pace expected this year, as a planned sales tax hike weighs temporarily on consumption, government forecasts showed.
In fiscal 2013/14, which began in April, Japan's economy is forecast to expand 2.8 percent as an improving labour market bolsters consumer spending and as policies to end 15 years of deflation start to take hold, the cabinet office said. That is an upgrade from the government's previous forecast of 2.5 percent growth.
Prime Minister Shinzo Abe has to decide this later this year whether to carry out a plan that would raise the 5 percent sales tax to 8 percent from next April and then to 10 percent in October 2015. Private consumption is expected to grow 0.5 percent in fiscal 2014/15, less than the 2.1 percent growth forecast for the current fiscal year, the cabinet office said.
The plan to raise the sales tax will add 0.2 percentage point to gross domestic product (GDP) in fiscal 2013/14 as shoppers rush to buy goods before the first tax hike, according to a cabinet office official. But the tax increase would then subtract 0.6 percentage point from economic growth in fiscal 2014/15 as consumers scale back purchases, the official said. Overall consumer prices are expected to rise 3.3 percent in fiscal 2014/15, but excluding the tax hike prices will rise 1.2 percent, the cabinet office said. In comparison, overall consumer prices are forecast to rise 0.5 percent in fiscal 2013/14, the cabinet office said.
The sales tax hike is meant to be the first step towards fixing Japan's public debt, which at more than double annual GDP, is the biggest burden in the industrial world. Abe has made economic recovery and the defeat of deflation his top priorities, but there are concerns he could delay the pace of tax hikes to avoid a slowdown in growth. The Bank of Japan unleashed an intense burst of monetary stimulus on, promising to double the supply of money through aggressive asset purchases to meet its 2 percent inflation target in roughly two years.
Latin American stocks rise on encouraging global outlook - Latin American stocks roseas China manufacturing data and the US Federal Reserve's promise to continue an USD 85-billion-per-month bond-buying program helped lift regional shares. Mexico's IPC index approached a near two-month high, while Chile's stock exchange snapped its five-session slide.
Chinareleased data showing its manufacturing sector grew slightly more than expected in July. China, the world's second-largest economy, is Brazil's biggest trading partner and a key purchaser of Latin American commodities exports, such as iron ore, soy, copper and petroleum.
The Fed's bond-buying program has kept US interest rates low and limited fixed-income returns, prompting investors to buy higher-risk assets such as emerging market stocks. Recent Fed suggestions that the program may be wound down had fuelled selling of assets in Latin America.
"The movement today in our market, based as strongly as it is on commodities, is upward," said Gillmor Monteiro, an investment manager at Intrader in Sao Paulo. He added that shares of lenders are rising today because of the expectation of low-interest rates in the near future.
Brazil's benchmark Bovespa index snapped a three-session slump, rising 1.15 percent to 48,787.10 points in early afternoon trading.
Spotlight On: Rethinking Emerging Market Allocations
Following five years of review, MSCI, whose equity indexes are tracked by investors with about USD 7 trillion in assets, recently announced that they will promote the United Arab Emirates (UAE) and Qatar from frontier-market status as of May 2014.
“It has been a long journey, but we’ve finally arrived,” said Georges Elhedery, head of global markets for the Middle East and North Africa at HSBC Holdings Plc when the move was announced on. “Today’s decision firmly establishes the region on the emerging-markets growth map in the minds of global institutional investors.”
The upgrades have the potential to draw USD 800 million of new funds into Qatari and UAE shares, according to HSBC. Economies in the six-nation Gulf Cooperation Council are growing three times faster than developed markets as governments funnel oil wealth into infrastructure projects, including plans to build stadiums and roads in Qatar before the nation hosts the 2022 soccer World Cup.
MSCI raised Qatar and UAE after they adopted changes including a buyer cash-compensation procedure, which enables investors to be paid in cash if a security is unavailable for delivery on settlement day. Qatar, the world’s biggest exporter of liquefied natural gas, has raised foreign-ownership limits of companies in its USD 141 billion stock exchange, the Qatar Exchange cited Finance Minister Yousef Hussain Kamal as saying in June.
This recent news has led to a rethink of emerging markets, investors are embracing countries that have improved their balance sheet and don't rely on outside funding for growth. Some investors are looking for extra insulation from future market gyrations. Stocks from Middle Eastern oil-and-gas producers have held up better than other emerging markets. Oil prices have risen recently, even as most other commodities have fallen. These countries' currencies are also pegged to the US dollar, so they aren't affected when the greenback rallies.
MSCI has released indicative indices for the UAE and Qatar, together with weights, following the MSCI’s announcement in June. The UAE companies include EMAAR Properties, DP World Ltd and Aldar Properties PJSC, while the Qatari companies include Qatar National Bank, Qatar Electricity & Water Co and Qatar Telecom.
According to Bloomberg consensus estimates the UAE companies are projected to witness strong income growth both in 2013 and 2014 and respectable BEst 2014E dividend yield averaging 3.1%. Strong UAE stock market YTD (DMGI +47%) has resulted in the Qatari stocks trading on lower multiples (QE Index +12% ) and having higher projected BEst 2014E dividend yields of 5.2%, with a majority of companies also projected to have double digit net income growth in 2014, according to the Bloomberg consensus estimates.
In the global hunt for yield, both the UAE and Qatari markets have companies offering attractive dividend yields, supported by income growth, and unlike a majority of other emerging and frontier markets the UAE and Qatar do not suffer from currency risk, given their US dollar pegs.