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| Tuesday, January 28, 2014 Advertisement Good morning. Here's what you need to know. — The bout of "risk-off" trading that has gripped global markets over the last three sessions appears to be over, at least for the moment. S&P 500 futures are pointing to a positive open, and gold is giving up some of the gains made in recent days. In Europe, markets are rallying, led by Spain's IBEX 35. In Asia, the Nikkei closed 0.2% lower and the Hong Kong Hang Seng slipped 0.1%, but the Shanghai Composite bounced 0.3%. — Apple shares are down 7.0% in pre-market trading after the company reported lackluster earnings results for the quarter ended December 31. Earnings per share were $14.50, above the consensus Wall Street estimate of $14.07, and revenue was $57.59 billion, slightly above the $57.48 billion consensus estimate, but the company offered revenue guidance for the current quarter in the range of $42 billion to $44 billion, below the $46.1 billion consensus estimate. Sales of iPhones were also significantly lower than expected at 51 million units (versus the 54.7 million estimate). — Shares of Ford Motor Company are up more than 2% in pre-market trading following the release of earnings results for the quarter ended December 31. The Detroit auto maker reported earnings per share of $0.31, above the consensus Wall Street estimate of $0.28. Revenues were $35.6 billion, slightly above the $35.5 billion consensus estimate. The company made no adjustments to its 2014 forecast. — The Reserve Bank of India unexpectedly hiked its benchmark interest rate to 8% from 7.75% following a policy meeting Tuesday, saying it would address inflation risks "resolutely" even as GDP growth slows. RBI governor Raghuram Rajan said growth can only be revived after inflation cools. The move was met with criticism by market economists, the overwhelming majority of which expected the RBI to leave rates unchanged. The Indian rupee strengthened against the U.S. dollar following the decision. — Ukrainian prime minister Mykola Azarov has offered his resignation to president Viktor Yanukovich "with the aim of creating extra means for finding a social-political compromise, for the sake of a peaceful settlement of the conflict." Kiev has been gripped by street demonstrations for several days protesting the administration's decision to pivot away from the EU and toward Russia. Over the weekend, Yanukovich offered Azarov's job to former economy minister and opposition leader Arseny Yatsenyuk in a bid to quell the uprising. — According to the advance estimate released by the Office of National Statistics this morning, the U.K. economy expanded 0.7% from the previous quarter in the fourth quarter of 2013, bringing the year-over-year change in GDP to 2.8%. Both numbers were right in line with expectations. — December durable goods orders data were considerably worse than expected. Total orders unexpectedly fell 4.3%, while orders of nondefense capital goods excluding aircraft unexpectedly dropped 1.3%. "In some sense, the weak tone of this report could take on added significance since it is unlikely to have been due to weather conditions, and in that regard it provides a much cleaner gauge on the underlying tone of domestic economic activity in December," says Millan Mulraine, deputy head of U.S. research and strategy at TD Securities. — The S&P/Case-Shiller Home Price Index advanced 0.88% from the previous month in November, slowing from October's 1.05% rate of growth but exceeding consensus estimates of a 0.80% rise. The year-over-year growth rate of the index of home prices rose to 13.71% from 13.61%. — The results of the Conference Board's monthly consumer confidence survey are released at 10:00 AM. Economists predict the report's headline index ticked down to 78.0 this month from 78.1 in December. — Also out at 10:00 are the results of the Richmond Fed's monthly manufacturing survey. Economists predict the report's headline index was unchanged at 13 in January, indicative of a continued favorable business environment. The survey polls manufacturers from Maryland, Virginia, West Virginia, North Carolina, and South Carolina on regional business conditions. Follow all of the data LIVE on Business Insider » MARKET COMMENTARY "Risk aversion is back, and so is talk of public debt restructuring, even if most likely a coincidence with the EM sell-off. In the days leading up to Davos, there has been renewed talk of the need to plan for a restructuring of high-grade sovereign debt in the years to come. "A summary of the issues around restructuring raised at Bruegel can be found here, in part based on this August 2013 paper. This is just all talk for now. But given plausible projections of 150%+ for debt/GDP in countries today rated AAA, the next 10 years provide time for this 'reprofiling' talk to come to fruition. "There are no immediate market implications. Just investors who are already thinking about how their portfolio is constituted in 10 years' time should consider largely overweighting non-government paper." —Ciaran O’Hagan and Jorge Garayo, interest rate strategists at Société Générale "Recent data indicate continued improvement in the fiscal picture...the fiscal deficit on a 12-month trailing basis has improved markedly over the past year. Some of this deficit reduction stems from one-off factors such as the 2013 tax increases that will have permanent level effects, while some of the reduction comes from transient factors like special dividends paid by Fannie Mae, and more recently, Freddie Mac. "However, there has also been a fundamental improvement in the underlying trend which we expect to continue. With the first fiscal quarter of the year known ― most of the net deficit for the year tends to occur in the first half of the fiscal year ― it now appears that the risks are skewed toward a smaller deficit than our current FY2014 forecast of $600 billion, which already included allowances for special factors such as the $30 billion dividend paid by Freddie Mac in December. "In the near term, CBO will release its annual Budget and Economic Outlook on Tuesday, February 4. We will take particular note of whether the CBO adjusts down its current FY2014 deficit forecast of $560 billion. In terms of implications for Treasury issuance, the macro trend towards lower deficits will argue for lower net financing needs this year and the next, in our view. However, in the very near term, we think that more idiosyncratic factors will be key drivers of Treasury's financing decisions." —Kris Dawsey, an economist at Goldman Sachs These days, emerging-market assets are the hot potato that no one wants to touch. Fears of risk assets spurred by pockets of weak EM data have garnered maybe a disproportionate amount of headlines. But when we look at which EM currencies that are being hit the most, there is a divide. On one side, the better-performing currencies are generally Asian: KRW, TWD, CNY, SGD. The ones that have been hurt the most have been non-Asian — led by the Argentinian peso, which is down 20% over the past four quarters. Within that group of laggards is a subgroup that is heavily dependent on the commodity cycle, including Argentina, Brazil, South Africa and Russia. Commodity prices have declined steadily since 2011 and as a result, growth in these countries has been negatively affected. The developed world has seen an uptick in growth, particularly the U.S. and the euro area, but unfortunately this may not be to the benefit of EM countries that rely heavily on commodity exports. While certain EM countries like China, Taiwan and South Korea should benefit from rising growth in the U.S. and Europe through exports, general weakness in the EM domestic economies should temper growth in demand for commodities and thus restrain gains in the CRB. The bottom line is this: not all EM countries are created equal and should not be placed in the same basket, and those that may stand to benefit the least are commodity-linked currencies. —Neil Dutta, head of U.S. economics at Renaissance Macro Research 
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