LONDON, Dec 20 (Reuters) - Emerging equities slid to a one-month low on Tuesday but Turkey’s lira and dollar bonds recovered the losses they incurred on Monday after the Russian ambassador was killed in an attack in the Turkish capital Ankara.
The Turkish lira rebounded 0.7 percent against the dollar after slipping 0.7 percent on Monday when an off-duty policeman shot Russia’s ambassador to Turkey, Andrei Karlov, at an art gallery. Turkish police have detained six people in connection with the killing.
Both Russia and Turkey pledged the need for more efforts to “fight terrorism” after the shooting, with the Russian, Turkish and Iranian foreign ministers due to meet in Moscow to discuss the crisis in Syria.
“There is some relief there has not been an escalation of tensions, unlike what we saw last year with the downing of the Russian plane,” said Manik Narain, emerging FX strategist at UBS.
“In the medium term it could introduce some downside to expectations of a rebound in Russian tourism next year but for now markets see the risks as contained,” he said, adding that an easing in U.S. Treasury yields had helped.
The yield premium paid by Turkish sovereign dollar bonds over U.S. Treasuries on the JPMorgan EMBI Global Diversified index narrowed by 3 basis points (bps) to 365 bps after widening on Monday. Stocks slipped a touch after closing down 0.5 percent.
The market is awaiting a decision on interest rates by the Turkish central bank. A Reuters poll showed a majority of analysts expected a rate hike though some thought the bank might pause.
“It’s not entirely clear they perceive a need to tighten,” Narain said. “The central bank has not been incrementally tightening liquidity in recent weeks as the lira has weakened so there is a risk they don’t come up with a more hawkish intent.”
Russia’s rouble firmed 0.2 percent against the dollar after gaining 0.3 percent on Monday. Moscow-listed rouble stocks were up 0.25 percent, hovering below record highs hit earlier in December.
MSCI’s emerging equities index slipped 0.3 percent to one-month lows in its fifth straight day of losses.
Emerging assets have been hit by guidance from the U.S. Federal Reserve that it will tighten faster than previously anticipated, with U.S. President-elect Donald Trump’s expansionary policies expected to fuel inflation.
Asian markets led the selling, with Chinese stocks falling 0.5 percent after Beijing’s moves to tighten supervision of shadow banking activities.
China’s yuan firmed but bonds remained weak with yields at a 15-month high.
Asian currencies suffered with Malaysia’s ringgit at its weakest level against the dollar since January 1998.
In emerging Europe Polish stocks rose over 1 percent to their highest level since April 2016, whilst the zloty firmed 0.2 percent against the euro.
Poland’s lower chamber of parliament has removed a temporary ban on access for the media after protests.
Hungary’s forint was steady and bonds firmed ahead of a central bank meeting at which rates are expected to remain on hold at 0.9 percent. It is possible the bank will announce a further cut in the three-month deposit facility.
Ukrainian dollar-denominated bonds rose across the curve after the International Monetary Fund pledged support following the government’s decision to nationalise PrivatBank.
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Morgan Stanley Emrg Mkt Indx 848.85 -2.28 -0.27 +6.89
Czech Rep 915.55 +3.09 +0.34 -4.26
Poland 1940.19 +15.52 +0.81 +4.36
Hungary 31676.40 +30.02 +0.09 +32.42
Romania 7005.04 -54.71 -0.77 +0.01
Greece 622.33 -5.58 -0.89 -1.43
Russia 1134.87 +4.81 +0.43 +49.91
South Africa 43535.83 +203.66 +0.47 -4.94
Turkey 77366.33 +208.53 +0.27 +7.86
China 3102.48 -15.61 -0.50 -12.34
India 26290.21 -84.49 -0.32 +0.66
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.00 27.00 +0.00 -0.01
Poland 4.41 4.42 +0.14 -3.51
Hungary 311.28 311.24 -0.01 +1.08
Romania 4.52 4.52 -0.01 +0.03
Serbia 123.46 123.57 +0.09 -1.61
Russia 61.69 61.85 +0.25 +18.25
Kazakhstan 335.10 335.12 +0.01 +1.61
Ukraine 26.40 26.24 -0.61 -9.27
South Africa 14.14 14.12 -0.14 +9.32
Kenya 102.23 102.20 -0.03 -0.03
Israel 3.86 3.86 +0.16 +0.84
Turkey 3.51 3.53 +0.67 -16.87
China 6.95 6.95 +0.05 -6.55
India 68.01 67.83 -0.26 -2.66
Brazil 3.36 3.36 +0.00 +17.68
Mexico 20.43 20.38 -0.25 -15.97
Debt Index Strip Spd Chg %Rtn Index
Sov‘gn Debt EMBIG 364 -4 .01 7 32.64 1
Additional reporting by Sujata Rao; Editing by Catherine Evans