LONDON: Emerging markets steadied after three days of intense selling yesterday, as investors waited to see if Turkey, one of the epicentres of the rout, would hike interest rates to defend its battered lira.
Investors have been shaken this week as jitters about the withdrawal of US monetary stimulus and slowing Chinese growth have amplified country-specific political turmoil from Turkey to Thailand.
Relative calm in Asia overnight meant European shares and periphery euro zone government bonds were able to claw back some recent lost ground, although with the approach of this week’s Federal Reserve meeting confidence remained fragile.
Wall Street was expected to snap a three-day run of falls when trading resumes, but focus remained firmly on whether the central bank of Turkey would bow to market pressure and hike interest rates at an emergency policy meeting later.
India surprised markets earlier by doing just that, and despite its reluctance to unsettle Turkish voters ahead of elections this year, a new Reuters poll showed analysts now expect the central bank to lift rates by 225 basis points.
The Turkish lira remained volatile ahead of the decision which will be announced at midnight in Istanbul (2200 GMT). It was trading at 2.2670 lira to the dollar, though it kept some distance from the record low of 2.3900 hit on Monday.
Istanbul’s main stock market, which has lost almost 20 percent over the last four months, also rose, climbing 1 percent at one point to help MSCI’s main emerging market index see its first gains in three sessions.
“We think there is room for the central bank to use more conventional monetary policy and that is clearly what the market expects,” said Fergus McCormick, head of sovereign ratings for rating agency DBRS.
Over 1 trillion dollars has been wiped off world stocks during a week of turbulence.
Slowing sales at gadget giant Apple had soured US markets on Monday, but Asia’s rebound and a rise in first quarter profits at German engineering behemoth Siemens helped European shares off near-one-month lows.
Futures prices pointed to Wall Street bouncing 0.2-0.4 percent when trading resumes in New York, with data and company earnings set to enliven the wait until the Fed’s decision.
Investors also drew comfort from the news that a Chinese trust firm had reached an agreement to resolve a troubled high-yield investment product. The deal came just days away from what could have been a precedent-setting default in China’s alternative, non-bank lending system.
“The deal to avert default is a source of relief for many, but it’s a clear warning on the scale of the risks that still remain with other trust products due to mature this year,” said Jackson Wong, Tanrich Securities’ vice-president for equity sales in Hong Kong.
Major currencies marked time ahead of the conclusion of Fed’s two-day policy meeting today, with both the euro and the yen down slightly at $1.3650 and 103.12 yen to the dollar respectively.
Reuters
