Asia seeks footing after Turkish tremors
Asia share markets are trying to regain their footing as tremors from the collapse of the Turkish lira ebbed a little and Wall Street proved resilient to the shockwaves.
Asia share markets are trying to regain their footing as tremors from the collapse of the Turkish lira ebbed a little and Wall Street proved resilient to the shockwaves.
Japan's Nikkei led the early running on Tuesday with a gain of 1.0 per cent, while Australia added 0.4 per cent.
MSCI's broadest index of Asia-Pacific shares outside Japan is flat having found support above the July low of 525.52. EMini futures for the S&P 500 edged up 0.2 per cent, while 10-year Treasury yields held at 2.88 per cent.
'Textbook solutions' such as rate rises could help Turkey, analysts say
Investors were encouraged that falls on Wall Street were only minor. The Dow ended Monday down 0.5 per cent, while the S&P 500 lost 0.40 per cent and the Nasdaq 0.25 per cent.
Chinese economic data could provide a distraction with July retail sales, industrial output and urban investment all due.
Forecasts favour a slight pick up in activity while the outlook should be supported by Beijing's recent efforts to encourage lending and boost infrastructure spending.
Turkey's lira found a moment's respite at 6.9500 per US dollar after the country's central bank said it would provide liquidity and cut reserve requirements for banks.
Yet it still lost almost 10 per cent on Monday alone and has shed more than two-fifths of its value so far in 2018.
The rot spread to the South African rand and the Argentine peso. Argentina's central bank surprised by raising interest rates by 5 percentage points on Monday, but it was still not enough to stop the peso hitting a record low.
JPMorgan economist David Hensley argued that strains in most other emerging markets (EM) would be contained.
"Negative developments in Turkey will likely be eventually seen, along with Argentina, as isolated given their exceptional external imbalances compared to most EM countries," he said.
"Nonetheless, we are mindful of political risk elsewhere in the EM involving Russia as well as Brazil, Mexico, and even India."
Fidelity assistant portfolio manager Paul Greer says there are plenty of "textbook solutions" to the crisis.
"An aggressive interest rate hike from the Central Bank would be a good start," he says. "Something of the order of +1,000 basis points that Argentina delivered back in May would be appropriate at this juncture.
"This would slow the economy, probably into a recession, which would help crunch the relentless demand for imports and alleviate some of the current account deficit problem."
For now, concerns about the exposure of European banks to Turkey pushed up bond yields in Spain and Italy and hobbled the euro. The single currency was last at $US1.1398, having touched its lowest since July 2017 on Monday.
It also reached one-year lows on the yen and Swiss franc, traditional safe harbours in times of stress.
The US dollar steadied at 110.63 yen, having hit a six-week trough around 110.11 on Monday. Against a basket of currencies, the US dollar was a shade softer at 96.338.
In commodity markets, gold looked to have lost its safe-haven halo and slid to its lowest since late January 2017. It was last down at $US11192.66 an ounce.
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Lex Hall is a Morningstar content editor, based in Sydney.
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