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Round Up – Emerging Markets & Central Bank Activities

James Boston
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Emerging markets continue to suffer as credit tightening in China and expectations of a step up in US Federal reserve ‘tapering’ take their toll. The Malaysian Ringgit and Philippine Peso both dropped to 2 ½ year lows overnight while the Nikkei index in Japan shed 2.5 percent as it fell back below the key 15,000 level. Renewed fears for the global economic recovery are convincing market players, particularly retail investors, to seek relative stability for their money.

The global unease is manifesting in a flight to safety as Gold continues to benefit from a short-term rally, posting gains for the third session in a row and ending last week higher for the fifth consecutive week. A test of the $1,280 level failed earlier in the day but expectations are that momentum will carry the precious metal higher as the all important $1,300 level becomes a near term target.

US President, Barack Obama, is expected to propose a fiscal stimulus during his annual State of the Union address to congress on Tuesday, this is likely to take the form of increased spending on infrastructural projects and also a call to boost the minimum wage. In contrast the Federal Reserve is anticipated to tighten the monetary screws later in the week as it further trims its bond purchase program.

It is a busy week for the global monetary authorities, the Central Bank of India faces the prospect of having to further raise interest rates when it meets on Tuesday, currently at 7.75% these relatively high rates are failing to control inflation which is growing at the fastest pace of all the Asian economies. New Zealand also has a monetary policy meeting later this week, there is a consensus beginning to form that rates will now be left at 2.5% as the strengthening New Zealand dollar is sufficiently contributing towards fighting inflation.

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