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Friday 5: Twitter squawks amid the Olympic cheer

Markets tumbled but apart from Japan bounced back. Read our review of the week with the exclusive 'Accumulator' stock market data table.

by Gavin Lumsden on Feb 07, 2014 at 14:41

After a bad start to the week stock markets clawed back some of the ground lost in January.

Weak Chinese and US manufacturing data sent shares round the world sliding, particularly in Japan, whose volatile Topix index ended the seven days ending Thursday 4% lower. The Topix has fallen nearly 7% so far this year. Following a stupendous rally in 2013 there are doubts over whether prime minister Abe can really succeed in rejuvenating Japan’s economy.

Elsewhere, the mood brightened as a report showed US private sector employers added 175,000 jobs last month, although this was the smallest increase since August. Markets awaited today’s non-farm payroll data to get the full picture on US employment, atlthough at first sight the figures look mixed and may not help people decide whether the Federal Reserve is right to be scaling back its stimulus policies.

The UK’s FTSE 100 gained 0.8% and is now down 2.7% this year. The FTSE World index edged 0.3% higher.

You can see all the market data in our exclusive 'Accumulator' table

Next: Russia and emerging markets bounce back

Russia and emerging markets bounce back

President Putin opened the Winter Olympics in Sochin amid controversy over his government’s intolerance of gay rights and fears that a massive security clampdown might not prevent a terrorist attack.

The Russian leader had better news from Moscow where the stock market rose 3%, making it the strongest performer for the week in our Accumulator table. Brazil also rallied to leave the broad MSCI Emerging Markets index unchanged on the week, although it has fallen nearly 6% this year and has tumbled nearly 14% over 12 months.

Emerging markets have been hit by the Fed’s decision to steadily reduce the cheap money it has pumped into the global economy. Emerging market countries rely heavily on overseas capital and the prospect of an end to US quantitative easing or ‘money printing’ means they’ill have to pay more for their finance, thus endangering their economic growth.

The big question is whether this is in the price and when emerging markets might start to recover.

Next: Draghi the actor

Draghi the actor

Amid the market upheaval, or ‘taper tantrum’, caused by US monetary policy it is sometimes overlooked that Europe could be a late joiner to the central bank money printing spree.

Mario Draghi, president of the European Central Bank, kept investors guessing this week when he announced the ECB would not yet take action to tackle the threat of deflation, or falling prices.

With eurozone inflation at just 0.7% it had been thought the ECB could cut interest rates again and pave the way for its own form of QE in order to stimulate the economy and stave off a slump.

In the end all Draghi would say in his monthly press conference was: ‘We are willing and we are ready to act.’ This echoed his famous ‘whatever it takes’ to save the euro speech from a few years ago. However, his ability to use words rather than deeds to move markets may be weakening.

Next: Gold glistens despite strong dollar and Forex probe

Gold glistens despite strong dollar and Forex probe

Another surprise was the continued rally in gold, finishing a sixth week of gains after its battering last year. Gold normally falls when the US dollar is rising, which it did this week, because it makes the dollar-priced precious metal more expensive to buy.

That said, the widening investigation into possible manipulation in the foreign exchange markets shows that things aren’t always what they appear in the world of currencies. This week New York banking regulator Banjamin Lawsky joined the probe, which includes at least seven police agencies and regulators around the world, and requested documents from big banks including Deutsche Bank, Goldman Sachs and Barclays.

Martin Wheatley, chief executive of the UK’s Financial Conduct Authority, said the allegations looked ‘every bit as bad’ as the Libor interest rate fixing scandal of 2012.

Next: RBS could ‘bankrupt’ independent Scotland

RBS could ‘bankrupt’ independent Scotland

The debate over Scottish independence has really got going following the intervention by Bank of England governor Mark Carney last week.

Alistair Darling, the former Labour chancellor who led the £45 billion taxpayer bail-out of Royal Bank of Scotland in 2009, highlighted the burden the bank could present an independent Scotland.

‘Had it [RBS] been the size it was then – and Scotland was independent – it would have bankrupted the Scotland,’ Darling, who heads the pro-union lobby told the Financial Times.

Darling compared having full responsibility for RBS to Darien, Scotland’s disastrous late 17th century colonial adventure that nearly bankrupted the country and ultimately led to the formal union with England.

Vince Cable, the Liberal Democrat business secretary, warned Scotland risked an Iceland-style crisis if RBS remained headquartered in Edinburgh after independence.

Next: Twitter squawks

Twitter squawks

Twitter has its work cut out after a damaging first quarter statement this week.

Shares in the loss-making US micro-blogging site tumbled 16% after Twitter shocked investors with a small increase in monthly users.

Twitter, which floated last year at the same time as the Royal Mail hit the UK stock market, revealed the number of average monthly users had risen just 3.8% to 241 million in the last three months of 2013.

Its numbers looked poor compared to Facebook which is bigger but growing faster and is increasingly profitable.

Chief executive Dick Costolo said the company was working to improve its service. ‘We don't need to change anything about the characteristics of our platform. We just need to make Twitter a better Twitter,’ he said.

Dr Sotirios Paroutis at Warwick Business School commented: ‘The long-term prospects could be positive as long as Twitter can rationalise its costs and continue to grow revenue in the next few quarters.’ He pointed out it generated three quarters of its revenue from mobile advertising compared to 53% for Facebook.

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