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Turning back to a healthier tune


Global developments. In the aftermath of the FOMC’s decision to taper its monthly bond purchases by another USD 10bn, global equity markets regained some poise after recent concerns over EM currency volatility and the interest rate response of some EM central banks. However, it might be premature to sound the all clear, as the backdrop of a retreat in EM capital flows, thin levels of fx reserves and economic growth uncertainties still persist. Yesterday’s economic data releases featured a slightly better than expected out-turn for US GDP growth of 3.2% annualised for 4Q13 (ex-inventories was 2.8%). Consumer spending and export growth was strong though government spending remained a drag on GDP. For all of 2013, US real GDP growth was 1.9%, compared with our long-standing forecast of 1.6%. Nominal GDP growth was 3.4%. We expect real GDP growth to be 3.2% this year as the fiscal restraint diminishes and the private sector feels more confident of spending its financial surplus. Today’s agenda includes updates on the Chicago PMI and the Michigan consumer sentiment index.

Russia (RTSI +1.0% @1,321; RUB +0.5% @34.95). The Russian market closed higher on Thursday, helped by the currency gain: RUBUSD returned to below the 35 mark. Exporters saw a strong bounce as investors were searching for a quiet harbour.

Fund flows. This morning, the EPFR reported that outflows from EM Equities funds had accelerated sharply to USD 6.4bn (–0.82%), double the four-week average of USD 2.9bn. Outflows from CEEMEA countries (USD 1.1bn, –0.93%) were at an even greater pace. More than half of these referred to Russia (USD 615mn of outflows, –1.12%, highest outflows since August 2011, outside the 2 S.D.). Other countries also faced heavy redemptions: ZA: USD 314mn of outflows (–0.92%), Poland: USD 63mn of outflows (–0.77%), Turkey: USD 54mn of outflows (–0.41%).
Daria Isakova, Vladimir Kolychev
VTB Capital analyst

Russia, USA, GDP

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