“The correlation between EM and and U.S. equities plunged in 2013 as portfolio outflows from emerging markets caused those stocks to fall, even as U.S. equities marched higher. But it may become increasingly harder for U.S. stocks to march higher as the fallout in EM intensifies. How much longer can this correlation remain at historically low levels?”


Pending Home Sales

“Pending home sales dropped 8.7% in December, vs. consensus -0.3% – largest decline since expiration of first-time homebuyer tax credit in 2010 – unfavorable indicator for near-term existing home sales – follows disappointing new home sales already released for month. Sales declined in the Northeast (-10.3%), West (-9.8%), South (-8.8%), and Midwest (-6.8%). The broad-based declines by region suggest that colder-than-average weather was likely not the primary driver, given slightly warmer-than-average temperatures on the Pacific coast in December.” (Goldman Sachs)

Refinancing Index

Earnings Season

“178 S&P 500 companies have reported 4Q results – 47% of companies have beaten earnings estimates, in-line with historical average – 11% have missed, vs. average of 15% – average EPS surprise 8%, above 5% historical average. 42% of companies reporting have beaten revenue estimates, above the historical average of 35%. 12% have missed Estimates vs. average of 20%. The average revenue surprise has been 2.1%, above the 0.9% historical average.” (Goldman Sachs)

Need for Fundamental Adjustments

“It is not yet clear that we have had sufficient FX adjustment across all EMs, with further weakness possible in ZAR, TRY, and BRL – evidence of stronger exports and softer domestic activity can lead to market stabilization, as in case of India recently – credible policy responses can also help markets stabilize. (i) For many EMs, moving to a sustainable pace of growth and reducing external imbalances requires a combination of weaker currencies and higher rates. (ii) In most places, real rates are only just normalizing from extremely low levels. (iii) Given the FX depreciation and policy tightening so far, it is vital to keep a close watch on the data. (iv) A credible response will need to convey the signal that authorities are also ready to face the consequences of policy tightening on activity.” (Goldman Sachs)

Current Account Balances