Global stock markets finally broke their losing streak on Tuesday morning, taking a breath as central banks in emerging markets acted to tackle a growing crisis that has inflicted five straight days of losses on Britain’s FTSE 100.
UK stocks were already higher before the statisticians confirmed City expectations of a 0.7% rise in UK GDP in the fourth quarter of last year, marking annual growth of 1.9%. This is a first estimate and small decrease from 0.8% growth in the previous three months.
The pound was little moved at $1.6594: traders are much more fussed by data on the UK jobs market and business surveys, while GDP is seen as old hat.
Instead emerging markets remained in focus. In recent days jitters over emerging markets have turned into panic, triggered by weak Chinese factory data, sharp currency declines and political instability in several key markets.
Investors on Tuesday though actually picked up some bargains, taking stock after the recent rout. Helping sentiment was signs of central bank action. The Indian central bank surprised markets by raising interest rates, Turkey’s central bank announced an emergency policy-setting meeting, and China’s powerful PBOC added yet more liquidity to the country’s banking system to head off a credit crunch.
The governor of Brazil’s central bank, Alexandre Tombini told the Financial Times that the ‘vacuum cleaner’ of rising interest rates in the developed world would suck money out of emerging markets and force other central banks to tighten policy to beat inflation.
While market commentators question whether emerging markets' troubles are baked into asset prices now, a big hurdle remains: the potentially imminent further ‘tapering’ of US stimulus.
The Fed is expected to conclude its two day policy meeting on Thursday by hacking off another $10 billion from its monthly bond purchase pot, meaning just $65 billion a month is pumped into markets.
Investors in emerging markets will be watching particularly keenly as they fret about the impact of the continued taper on flows into these volatile regions.
Still, the mood was better in London on Tuesday, with the FTSE rising 0.4% to 6,574 with banks and financial companies rebounding. Aberdeen, the asset manager that has sold off in recent weeks due to its high exposure to emerging markets, topped the FTSE 100 with a 4.3% gain to 408p.
Royal Bank of Scotland also gained back some of yesterday’s lost ground, climbing 2% to 338p. On Monday the company surprised investors with the news that it needs another £3.1 billion to cover mis-selling costs.
Imagination Technologies was the biggest loser on a buoyant mid-cap FTSE 250 index, down 1.5% to 176p. The tech company was suffering after Apple – which uses Imagination’s chip designs – reported flat quarterly profits. Apple shares fell some 9% in after-hours trading.
F&C Asset Management added to Monday's leap higher, rising another 4.3% to 121p, as investors welcomed the news that Bank of Montreal and F&C have agreed the terms of an all-cash £708 million takeover by the Canadian bank.
Today investors in Vodafone will have the chance to vote on the disposal of its stake in US company Verizon.
In the US, president Barack Obama is set to give his State of the Union speech.