Emerging-market assets rallied Tuesday as investors weighed the implications of the conflict in the Middle East against an easing of pressure on the US Treasury market.
(Bloomberg) — Emerging-market assets rallied Tuesday as investors weighed the implications of the conflict in the Middle East against an easing of pressure on the US Treasury market.
Suggestions from Federal Reserve officials Philip Jefferson and Lorie Logan that there may not be a need for fresh interest-rate hikes following the surge in Treasury yields fueled the reversal of Monday’s risk-off tone. A rally in US Treasuries overnight on haven demand has also supported sentiment.
The gauge for emerging market stocks posted its biggest gain since late August. The currency counterpart climbed to the highest level in two weeks, led higher by Colombia’s peso, South Africa’s rand and Brazil’s real. The conflict in Israel had sparked concern about an investor exodus from developing-nation assets, already battered by rising bond yields and higher oil prices. Yet, assets have so far proved relatively resilient.
“A long as there is no trace-back to Iran’s involvement, the market is calmer,” said Thierry Wizman, director of global currencies and an interest-rate strategist at Macquarie Futures. “If there’s a ‘smoking gun’ that points to Iran as the organizer or coordinator of the attacks, the market will become more fearful about the geopolitical situation, and oil prices will rise.”
Read more: Top US General Warns Iran to Stay Out of Conflict
Meanwhile, news out of China indicated that the world’s second largest economy is considering new stimulus. That propelled gains in resource-heavy bourses. Still, Chile’s currency was dragged down by a slump in copper and the outlook for higher crude prices stemming from the conflict in the Middle East.
South Africa’s benchmark was among the top ten performers in the world, rising more than 3% and posting its strongest gains since November. Global mining giant Anglo American led the advance.
In Israel, the shekel was trading little changed even after the central bank vowed to support the currency with unprecedented measures, an effort to contain the fallout from Hamas’s attack on Saturday.
In meetings being held in Morocco, the International Monetary Fund warned developing-nation currencies may be at risk as their central banks begin to ease monetary policy, while those in advanced economies state a commitment to keep interest rates higher for longer.
–With assistance from Philip Sanders.
(Updates with market moves throughout)
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