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Home » Online Forex Trading Blog » Investors Shift To Peripheries

Investors Shift To Peripheries

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Emerging markets have borne the weight of punitive flight strategies as investors ahead of the game shift away from core euro zone bonds to euro zone periphery countries that struggled mightily at the outset of the recession. Yields from Italy, Ireland and especially Spain have gained favor with many fund managers admitting they are overweight in these areas.

And, why not? A negative report from the Markit’s Composite Purchasing Managers’ Index, that includes data from thousands of businesses, turned sour in February, falling to 52.7, 0.2 points below January’s 31-month high. Analysts had expected a jump to 53.1.

Disappointing German manufacturing PMI weighs heavily on the euro and combined with soft inflation data from France pressured the euro, which just two days ago reached a 7-week high against the USD. French flash February Service indicate surprising weakness undermining PMI. In early trading, the euro was down 0.3 percent against the dollar but also edged down against British sterling, the yen and most major currencies.

The weak core euro zone data bodes badly for emerging economies where flights to safety have dominated the marketplace. Surprisingly, investors are moving to Italy, Ireland and Spain where returns are good despite some underlying weakness.

Emerging markets also soured in the face of the outbreaks in Ukraine and the dismissal of Nigeria’s Central Bank chair. Euro zone peripherals look better all the time. Spain is the main beneficiary but Portugal, Italy, Greece and Ireland, the PIIGS, are on the mend.

GDP in Ireland is projected to grow 2 percent this year. The PIIGS have garnered $12 billion in net cash flows in a little over one year. Yields have lowered but offer just enough security to attract former emerging economy investors.

Citi verified the “flight to relative quality” in a report that indicated a 300 percent increase in PIIGS investments in the last 3 days. Spain’s benchmark 10-year bonds are at their lowest since 2008 but still offer a 5 percent. Irish and Portuguese yields are 10 percent lower than their 2011 levels.

The USD Rebounds

Euro zone weakness and some encouraging economic data helped the USD rebound against the euro and a basket of currencies. The .DXY edged up 0.2 percent to 80.314 with assists from an improved new claims report from the US Labor Department and surprisingly string manufacturing data, the best in 4 years.

There remain concerns about the economic impact of the bitter weather across the US. High energy consumption has spiked a rise in natural gas and will surely affect household budgets but the American consumer is unusually durable. Natural gas surged 3.6 percent and electricity rose 1.8 percent in January, the largest increase since January 2010.

Consumer prices climbed 1.6 percent in te 12 month period through January after posting 1.5 percent gains through December 2013.

Weak data from China boosted the yen and soured investors against emerging economies. Japan posted strikingly high import numbers for January as economists suggest a pullback is in the future. Japan’s trade imbalance is imposing.

Dow Jones – Up 30.57 (0.19%) to 16,071.13

Nasdaq – Up 11.55 points (0.27 percent) to 4,249.50

S&P 500 – Up 4.19 points (0.23 percent) to 1,832.94.

Euro – USD – Down 0.18 percent to 1.3707

GBP – USD – Down 0.14 percent to 1.6655

USD – CAD – Down 0.05 percent to 1.1073  

AUD – USD – Down 0.18 percent to 0.89830 

USD – Ruble  – 35.680

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About the Author -

Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses. Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.

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