Stock markets steadied yesterday after three days of intense selling as investors waited to see if Turkey, one of the epicentres of the recent 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 and economic turmoil, from Turkey to Thailand to Argentina.
Yesterday, Standard & Poor’s cut its rating on Ukraine’s credit further into “junk” territory, citing escalating political instability.
The Federal Reserve began a two-day meeting, after which it is expected to announce the trimming of another $10 billion from the $75 billion it currently spends each month on buying bonds to support the US economy.
Wall Street stocks were trading higher despite a slide in Apple shares a day after the largest US company by market value reported quarterly earnings.
“Emerging markets are doing poorly and that brings you back to the US stock market and that’s why you are seeing buyers come in, with the thought the sell-off was an opportunity to re-establish positions,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.
“I don’t think there will be (contagion) absent something much more material to the investing thesis around the world.”
The Dow Jones industrial average rose 86.18 points, or 0.54 per cent, at 15,924.06. The Standard & Poor’s 500 Index was up 9.40 points, or 0.53 per cent, at 1,790.96. The Nasdaq Composite Index was up 4.52 points, or 0.11 per cent, at 4,088.13.
Asian equities outside Japan steadied and US-dollar denominated Nikkei futures rose one per cent. A gauge of global equities rose 0.3 per cent.
European stocks, and especially those in eastern and southern Europe, were seen as possible beneficiaries from the recent flight from emerging market assets, thanks to improving growth prospects and still low valuations.
“No need to bottom-fish in emerging markets just yet. We still find the eurozone recovery theme to be more interesting,” said J.P.Morgan European equity strategist Mislav Matejka.
European shares were up the most in nine sessions, with a 0.6 per cent gain.
US Treasuries prices were little changed. Analysts said investors are reluctant to buy safe-haven bonds on fears that any surprise in Wednesday’s Fed statement could derail this month’s rally in Treasury prices.
“Investors are having reticence about the level of the market in the face of the Fed announcement,” said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey.
Investors poured cash into developing economies when emergency rate cuts during the financial crisis meant US, European and other developed market bonds offered little yield, comparatively.
They are now pulling it back out as prospects of higher developed-market rates re-emerge.
The Turkish lira rose for a second day against the US dollar ahead of the interest-rate decision expected at midnight in Istanbul (2200 GMT). It was up 1.1 per cent at 2.2550 per dollar, compared with a record low of 2.3900 hit on Monday.
A new Reuters poll showed analysts expect the Turkish central bank to lift rates by 225 basis points despite its reluctance to unsettle Turkish voters ahead of elections this year.
“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.
India surprised markets earlier with a rate hike.
Major currencies weakened against the US dollar after data showed US consumer confidence rose in January, with Americans more optimistic about both business conditions and the job market.
The euro was down 0.1 per cent at $1.3654 and the yen fell 0.4 per cent at 102.91 per dollar.
With Turkey expected to raise rates and the move from India’s central bank, more emerging market central banks are expected to tighten policy in a bid to stabilize their tumbling currencies.
Brazil, South Africa and Indonesia – some of which have been dubbed the Fragile Five economies, with a strong reliance on external capital – are main candidates. South Africa’s central bank meets on Wednesday.