Lira, rupee at forefront as Syria tension pounds emerging assets

By Sujata Rao

LONDON | Wed Aug 28, 2013 4:12pm BST

LONDON (Reuters) - Emerging stocks, bonds and currencies took another hammering on Wednesday as mounting expectations of Western action against Syria pushed up oil prices and drove investors to seek shelter in dollar assets.

The United States and its allies appeared to be gearing up for a military strike against Syria, perhaps within days, as punishment for last week's chemical weapons attacks which they have blamed on President Bashar al-Assad's government.

The Turkish lira and the Indian rupee - already under heavy pressure due to their large current account deficits and an imminent rollback in U.S. money printing - were at the forefront of selling, with both hitting new record lows as oil prices surged to six-month highs above $117 (75.30 pounds) a barrel.

The higher cost of oil will make it even more difficult for the two energy importers to contain their current account gaps.

"Syria is raising the level of uncertainty and those closest to Syria such as Turkey will be on the receiving end of the selling," said Ashok Shah, CIO of asset manager London & Capital. "It's another round of bad news."

"In (energy-importing) countries such as India, if you look at the oil price in rupees you can see how they are getting impacted - it's a double whammy for them."

The rupee tumbled 3.6 percent to 68.80 per dollar, its biggest one-day fall in 18 years, bringing 2013 losses to 20 percent. The lira fell 1.6 percent, while Turkish credit default swaps inched to new 14-month peaks.

The Syrian crisis has aggravated a selloff in emerging market assets that was triggered by expectations the U.S. Federal Reserve will start scaling back its massive stimulus programme, as soon as next month.

U.S. stimulus had flooded developing economies with cheap cash and concerns those flows may now reverse are especially hitting the currencies of countries with large funding gaps - India, Turkey, Brazil, South Africa and Indonesia.

As the Middle East prepared for the impact of a strike on Syria, stock markets in the region plunged and the Israeli shekel extended losses, easing to a near three-month versus the dollar.

One of the best-performing emerging currencies this year, the shekel has shed almost half its 2013 gains on concerns that U.S.-led action in Syria may lead to wider conflict in the area.

Emerging currencies are so far shrugging off central banks' efforts to stem the rot and in Turkey investors have taken the central bank's refusal to aggressively raise rates as a green light to sell the lira.

"The lira is just going one way unless the (central bank) reveals its hand more clearly - it needs a bit ticket interventionist plan," Standard Bank analyst Tim Ash said.

Brazil's real has eased off five-year lows and rose 0.8 percent due to a $60 billion currency intervention plan and expectations of a half point rate rise later on Wednesday - the fourth in a row.

Investors are now waiting to see what Indonesia's central bank does at an extraordinary meeting it has called for Thursday. Markets reckon a rate rise is in the cards to lift the rupiah off four-year lows.

Bond yields have risen across the board.

OUTFLOWS

Losses on emerging currencies come as investors stampede to exit emerging stocks and bonds, raising concerns of a vicious circle that will induce more investors to sell out.

Dubai's .DFMGI stock market dived 7.5 percent at one point, after a 7 percent slide on Tuesday, although it later recovered.

Early on Wednesday, stocks in the Philippines .PSI tumbled 6 percent, while Indonesian and Thai bourses fell 2.5-3 percent .JKSE .SETI in tandem with a fierce currency selloff.

Foreign investors sold $1 billion of Indian shares in the eight sessions through Tuesday while dumping almost $3 billion in debt over 13 successive sessions. Indonesia has seen equity outflows of $1.3 billion in the past seven sessions.

"Some emerging markets were overbought and they needed a selloff to bring them to more reasonable levels," said Julian Mayo a portfolio manager at Charlemagne Capital. "But at the moment, sentiment seems to have taken over from fundamentals."

Latin American stocks fared slightly better however, with Mexico .MXX and Brazil .BVSP up 0.2 percent.

Eastern European currencies, so far resilient to the emerging markets malaise, thanks to a recovering euro zone and relatively small funding needs, also saw selling due to dovish signals from policymakers.

The Polish zloty fell 1 percent to five-week lows after the finance minister called for more rate cuts. The Hungarian forint was flat following the previous session's 1 percent fall that was caused by a 20 bps rate cut.

"Such policy steps look increasingly inappropriate in a market where investors require higher risk premiums," analysts at BNP Paribas said.

(Editing by Jeremy Gaunt)

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Lira, rupee at forefront as Syria tension pounds emerging assets

Turkish lira banknotes are seen in this picture illustration taken in Istanbul October 18, 2011.

Credit: Reuters/Murad Sezer

By Sujata Rao

LONDON | Wed Aug 28, 2013 11:14am EDT

LONDON (Reuters) - Emerging stocks, bonds and currencies took another hammering on Wednesday as mounting expectations of Western action against Syria pushed up oil prices and drove investors to seek shelter in dollar assets.

The United States and its allies appeared to be gearing up for a military strike against Syria, perhaps within days, as punishment for last week's chemical weapons attacks which they have blamed on President Bashar al-Assad's government.

The Turkish lira and the Indian rupee - already under heavy pressure due to their large current account deficits and an imminent rollback in U.S. money printing - were at the forefront of selling, with both hitting new record lows as oil prices surged to six-month highs above $117 a barrel.

The higher cost of oil will make it even more difficult for the two energy importers to contain their current account gaps.

"Syria is raising the level of uncertainty and those closest to Syria such as Turkey will be on the receiving end of the selling," said Ashok Shah, CIO of asset manager London & Capital. "It's another round of bad news."

"In (energy-importing) countries such as India, if you look at the oil price in rupees you can see how they are getting impacted - it's a double whammy for them."

The rupee tumbled 3.6 percent to 68.80 per dollar, its biggest one-day fall in 18 years, bringing 2013 losses to 20 percent. The lira fell 1.6 percent, while Turkish credit default swaps inched to new 14-month peaks.

The Syrian crisis has aggravated a selloff in emerging market assets that was triggered by expectations the U.S. Federal Reserve will start scaling back its massive stimulus program, as soon as next month.

U.S. stimulus had flooded developing economies with cheap cash and concerns those flows may now reverse are especially hitting the currencies of countries with large funding gaps - India, Turkey, Brazil, South Africa and Indonesia.

As the Middle East prepared for the impact of a strike on Syria, stock markets in the region plunged and the Israeli shekel extended losses, easing to a near three-month versus the dollar.

One of the best-performing emerging currencies this year, the shekel has shed almost half its 2013 gains on concerns that U.S.-led action in Syria may lead to wider conflict in the area.

Emerging currencies are so far shrugging off central banks' efforts to stem the rot and in Turkey investors have taken the central bank's refusal to aggressively raise rates as a green light to sell the lira.

"The lira is just going one way unless the (central bank) reveals its hand more clearly - it needs a bit ticket interventionist plan," Standard Bank analyst Tim Ash said.

Brazil's real has eased off five-year lows and rose 0.8 percent due to a $60 billion currency intervention plan and expectations of a half point rate rise later on Wednesday - the fourth in a row.

Investors are now waiting to see what Indonesia's central bank does at an extraordinary meeting it has called for Thursday. Markets reckon a rate rise is in the cards to lift the rupiah off four-year lows.

Bond yields have risen across the board.

OUTFLOWS

Losses on emerging currencies come as investors stampede to exit emerging stocks and bonds, raising concerns of a vicious circle that will induce more investors to sell out.

Dubai's stock market dived 7.5 percent at one point, after a 7 percent slide on Tuesday, although it later recovered.

Early on Wednesday, stocks in the Philippines tumbled 6 percent, while Indonesian and Thai bourses fell 2.5-3 percent in tandem with a fierce currency selloff.

Foreign investors sold $1 billion of Indian shares in the eight sessions through Tuesday while dumping almost $3 billion in debt over 13 successive sessions. Indonesia has seen equity outflows of $1.3 billion in the past seven sessions.

"Some emerging markets were overbought and they needed a selloff to bring them to more reasonable levels," said Julian Mayo a portfolio manager at Charlemagne Capital. "But at the moment, sentiment seems to have taken over from fundamentals."

Latin American stocks fared slightly better however, with Mexico and Brazil up 0.2 percent.

Eastern European currencies, so far resilient to the emerging markets malaise, thanks to a recovering euro zone and relatively small funding needs, also saw selling due to dovish signals from policymakers.

The Polish zloty fell 1 percent to five-week lows after the finance minister called for more rate cuts. The Hungarian forint was flat following the previous session's 1 percent fall that was caused by a 20 bps rate cut.

"Such policy steps look increasingly inappropriate in a market where investors require higher risk premiums," analysts at BNP Paribas said.

(Editing by Jeremy Gaunt)

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Italian tensions in focus as emerging markets steady

1 of 3. A man walks through the lobby of the London Stock Exchange August 5, 2011.

Credit: Reuters/Suzanne Plunkett

By David Gaffen

NEW YORK | Mon Aug 26, 2013 1:46pm EDT

NEW YORK (Reuters) - U.S. Treasury bonds rallied after a weaker-than-expected result for durable goods orders, but global equity markets were relatively calm in an otherwise slow Monday trading session.

One exception was in Italy, where the risk of a new government crisis sent shares and bonds tumbling.

Orders for long-lasting U.S. manufactured goods fell the most in nearly a year in July and a gauge of planned business spending on capital goods tumbled.

The weak data boosted prices in the U.S. bond market, where the benchmark 10-year U.S. Treasury note was up 3/32, the yield at 2.80 percent.

The durable goods report was the latest in a series of data points that have kept expectations for the Federal Reserve's next step muddled. Economists largely expect the Fed will start to reduce its $85 billion in monthly purchases of debt, but some uncertainty over this remains.

Craig Dismuke, chief economic strategist with Vining Sparks in Memphis, Tennessee, said the news would not stop the Fed from "tapering," but that the Fed "might taper less than expected."

The debate over the Fed's plans and its impact on emerging economies has dominated markets in recent weeks.

The Dow Jones industrial average .DJI was up 13.42 points, or 0.09 percent, at 15,023.93. The Standard & Poor's 500 Index .SPX was up 2.04 points, or 0.12 percent, at 1,665.54. The Nasdaq Composite Index .IXIC was up 18.76 points, or 0.51 percent, at 3,676.55.

"The numbers were disappointing this morning, but maybe we've returned to one of those odd situations where bad news is good for the market in terms of the Fed tapering," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

In Italy, members of Silvio Berlusconi's center-right People of Freedom party said on Sunday they would force early elections if their center-left coalition allies voted next month to expel the former Italian premier over a tax fraud conviction.

Italian shares .FTMIB ended down 2.1 percent, but the broader euro zone stock market .STOXX50E was down just 0.2 percent. Italy's bonds fell, taking Spanish and Portuguese bonds down with them.

Investors are worried that Italy's plans to mend its finances will fall apart if the coalition crumbles and that being without a government could make it tricky for the European Central Bank to shield it from market pressure.

"If you have new elections now there is a high risk you would not have a majority government, so that is why we are seeing a widening of spreads in the periphery," said ING rate strategist Alessandro Giansanti. He noted the timing is poor, given Italy is set to sell bonds this week.

EMERGING LULL

After the turmoil of last week .MSCIEF, share indexes in India gained ground, though there were modest falls in Indonesia and both countries' currencies weakened again against the dollar. .

Investors are expecting improving returns from advanced economies while India, Indonesia and Brazil have all scrambled in recent weeks to try to stem destabilizing outflows that have crippled their currencies.

The Indian rupee weakened on Monday, tracking offshore rates, while month-end dollar demand from importers also dragged the currency lower. The country's central bank stepped in to sell dollars to try to restrain the decline, which has taken the rupee to record lows.

Against the yen, the dollar traded at 98.67 off Friday's peak of 99.15, while the euro bought $1.3369, having climbed as high as $1.3410.

Spot gold, which as an inflation hedge has benefited from the global flood of liquidity, briefly popped above $1,400 an ounce for the first time since early June, extending Friday's 1.5 percent rally. It last stood at $1,396.36.

U.S. crude slipped to $106.42 a barrel, while Brent was down slightly at $110.96.

(Additional reporting by Ellen Freilich and Rodrigo Campos; Editing by John Stonestreet, Ruth Pitchford and Dan Grebler)

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Emerging countries must be able to control capital flows: study

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Sat Aug 24, 2013 12:31pm EDT

JACKSON HOLE, Wyoming (Reuters) - Emerging market nations can be adversely affected by large swings in investment and, therefore, must develop tools to control credit flows or risk relinquishing any independent monetary policy, a study shows.

These findings were presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.

Many countries, including India and Brazil, have recently experienced steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.

The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion an open flow of money between countries, regardless of the consequences.

"Macroprudential policies are necessary to restore monetary policy independence for the non-central countries," wrote Helene Rey, professor at the London Business School. "They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."

That, said the study, is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interest rates and credit creation from sources outside their control.

"Independent monetary policies are possible if - and only if - the capital account is managed, directly or indirectly, via macroprudential policies," Rey said. These can take many forms, including efforts to restrain credit growth in particular areas of the economy.

"Since, for a country, the most dangerous outcome of inappropriately loose global financial conditions is excessive credit growth, a sensible policy option is to monitor directly credit growth and leverage in each market," she said.

Terrence Checki, executive vice president of the Federal Reserve Bank of New York, charged with commenting on the paper, pushed back against the notion that rich-country central banks should start paying more attention to the international effects of their policies.

He said that, in keeping with conventional wisdom at the Fed, monetary policy should be aimed at domestic objectives.

"It's not clear we can control the financial cycle very well with monetary policy," Checki said.

(Editing by Vicki Allen and Gunna Dickson)

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Emerging countries must be able to control capital flows: study

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Sat Aug 24, 2013 12:31pm EDT

JACKSON HOLE, Wyoming (Reuters) - Emerging market nations can be adversely affected by large swings in investment and, therefore, must develop tools to control credit flows or risk relinquishing any independent monetary policy, a study shows.

These findings were presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.

Many countries, including India and Brazil, have recently experienced steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.

The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion an open flow of money between countries, regardless of the consequences.

"Macroprudential policies are necessary to restore monetary policy independence for the non-central countries," wrote Helene Rey, professor at the London Business School. "They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."

That, said the study, is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interest rates and credit creation from sources outside their control.

"Independent monetary policies are possible if - and only if - the capital account is managed, directly or indirectly, via macroprudential policies," Rey said. These can take many forms, including efforts to restrain credit growth in particular areas of the economy.

"Since, for a country, the most dangerous outcome of inappropriately loose global financial conditions is excessive credit growth, a sensible policy option is to monitor directly credit growth and leverage in each market," she said.

Terrence Checki, executive vice president of the Federal Reserve Bank of New York, charged with commenting on the paper, pushed back against the notion that rich-country central banks should start paying more attention to the international effects of their policies.

He said that, in keeping with conventional wisdom at the Fed, monetary policy should be aimed at domestic objectives.

"It's not clear we can control the financial cycle very well with monetary policy," Checki said.

(Editing by Vicki Allen and Gunna Dickson)

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Emerging countries must be able to control capital flows - study

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Sat Aug 24, 2013 5:29pm BST

JACKSON HOLE, Wyoming (Reuters) - Emerging market nations can be adversely affected by large swings in investment and, therefore, must develop tools to control credit flows or risk relinquishing any independent monetary policy, a study shows.

These findings were presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.

Many countries, including India and Brazil, have recently experienced steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.

The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion an open flow of money between countries, regardless of the consequences.

"Macroprudential policies are necessary to restore monetary policy independence for the non-central countries," wrote Helene Rey, professor at the London Business School. "They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."

That, said the study, is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interest rates and credit creation from sources outside their control.

"Independent monetary policies are possible if - and only if - the capital account is managed, directly or indirectly, via macroprudential policies," Rey said. These can take many forms, including efforts to restrain credit growth in particular areas of the economy.

"Since, for a country, the most dangerous outcome of inappropriately loose global financial conditions is excessive credit growth, a sensible policy option is to monitor directly credit growth and leverage in each market," she said.

Terrence Checki, executive vice president of the Federal Reserve Bank of New York, charged with commenting on the paper, pushed back against the notion that rich-country central banks should start paying more attention to the international effects of their policies.

He said that, in keeping with conventional wisdom at the Fed, monetary policy should be aimed at domestic objectives.

"It's not clear we can control the financial cycle very well with monetary policy," Checki said.

(Editing by Vicki Allen and Gunna Dickson)

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Emerging countries must be able to control capital flows: study

By Pedro Nicolaci da Costa

JACKSON HOLE, Wyoming | Sat Aug 24, 2013 12:31pm EDT

JACKSON HOLE, Wyoming (Reuters) - Emerging market nations can be adversely affected by large swings in investment and, therefore, must develop tools to control credit flows or risk relinquishing any independent monetary policy, a study shows.

These findings were presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.

Many countries, including India and Brazil, have recently experienced steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.

The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion an open flow of money between countries, regardless of the consequences.

"Macroprudential policies are necessary to restore monetary policy independence for the non-central countries," wrote Helene Rey, professor at the London Business School. "They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."

That, said the study, is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interest rates and credit creation from sources outside their control.

"Independent monetary policies are possible if - and only if - the capital account is managed, directly or indirectly, via macroprudential policies," Rey said. These can take many forms, including efforts to restrain credit growth in particular areas of the economy.

"Since, for a country, the most dangerous outcome of inappropriately loose global financial conditions is excessive credit growth, a sensible policy option is to monitor directly credit growth and leverage in each market," she said.

Terrence Checki, executive vice president of the Federal Reserve Bank of New York, charged with commenting on the paper, pushed back against the notion that rich-country central banks should start paying more attention to the international effects of their policies.

He said that, in keeping with conventional wisdom at the Fed, monetary policy should be aimed at domestic objectives.

"It's not clear we can control the financial cycle very well with monetary policy," Checki said.

(Editing by Vicki Allen and Gunna Dickson)

View the original article here

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Emerging countries must be able to control capital flows - study

JACKSON HOLE, Wyoming | Sat Aug 24, 2013 4:01pm BST

JACKSON HOLE, Wyoming (Reuters) - Emerging market nations can be adversely affected by large swings in investment, and must therefore develop tools to control credit flows or risk relinquishing any independent monetary policy.

That was the finding of a paper presented at the Kansas City Federal Reserve's monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.

Many countries including India and Brazil have recently suffered steep sell-offs in their currencies, linked in part to the prospect that the Fed might soon dial down the pace of its bond-buying monetary stimulus.

The Jackson Hole study highlights a shift in conventional economic thinking, which used to champion open flows of money between countries regardless of the consequences.

"Macroprudential policies are necessary to restore monetary policy independence for the non-central countries," wrote Helene Rey, professor at the London Business School.

"They can substitute for capital controls, although if they are not sufficient, capital controls must also be considered."

That is because countries with floating exchange rates, the dominant global practice, would be abdicating their control over interests rates and credit creation from sources outside their control, the paper said.

"Independent monetary policies are possible if and only if the capital account is managed, directly or indirectly via macroprudential policies," Rey said.

(Reporting by Pedro Nicolaci da Costa; Editing by Vicki Allen)

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Emerging market rout eases as data lifts growth hopes

1 of 2. A man walks through the lobby of the London Stock Exchange August 5, 2011.

Credit: Reuters/Suzanne Plunkett

NEW YORK | Fri Aug 23, 2013 10:19am EDT

NEW YORK (Reuters) - U.S. stocks and the dollar were mostly lower in early New York trade on Friday after a government report showed sales of new single-family homes in America fell sharply in July to their lowest level in nine months, casting a shadow over the country's housing recovery.

The report raised doubts about the timing and extent of cuts to the Federal Reserve's stimulus program.

"This has been a very unique market situation with the Fed stimulus being such an important component to the market rally. This is uncharted waters for us," said Gordon Charlop, managing director at Rosenblatt Securities in New York. "So regardless of what the move is, the fact you are someplace you haven't been before is cause for uncertainty."

The next Fed monetary policy meeting is scheduled for September 17-18.

The Dow Jones industrial average .DJI was down 27.80 points, or 0.19 percent, at 14,935.94. The Standard & Poor's 500 Index .SPX was down 1.78 points, or 0.11 percent, at 1,655.18. The Nasdaq Composite Index .IXIC was up 5.97 points, or 0.16 percent, at 3,644.68.

The dollar surrendered gains against a basket of currencies .DXY on Friday, after earlier climbing to a three-week peak versus the yen, helped by the rise in U.S. bond yields this week on expectations the Fed will reduce its asset-buying program next month.

(Reporting By Nick Olivari; Editing by Nick Zieminski)

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Global stocks, emerging currencies hit as Fed minutes near

1 of 7. Traders work on the floor of the New York Stock Exchange August 21, 2013.

Credit: Reuters/Brendan McDermid

By Herbert Lash

NEW YORK | Wed Aug 21, 2013 1:10pm EDT

NEW YORK (Reuters) - Global equity markets slid for a fifth day on Wednesday and the dollar strengthened ahead of a report from the latest Federal Reserve policy-setting meeting that is expected to hint, at the least, of a pullback of economic stimulus in September.

Most U.S., European and emerging market stocks fell, as did U.S. Treasury and German bond prices, amid caution ahead of the release of the Fed's minutes from its July 30-31 meeting at 2 p.m. EDT.

The dollar edged higher from a six-month low against the euro and gained versus the yen as traders bet the minutes will reinforce expectations of a pullback in the Fed's bond-buying program aimed at spurring growth by keeping interest rates low.

Investors are looking for insight on how and when the Fed will begin to cut back on its bond buying, said Wilmer Stith, co-manager of the Wilmington Broad Market Bond Fund in Baltimore.

"Even if we don't really get anything out of the minutes that sheds new light on the question, at the end of the day people are getting set up for a tapering event in September," Stith said.

MSCI's all-country stock index .MIWD00000PUS was down 0.61 percent at 367.96, while the pan-European FTSEurofirst 300 index .FTEU3 of top regional shares closed down 0.6 percent at 1,207.71.

The Dow Jones industrial average .DJI was down 62.14 points, or 0.41 percent, at 14,940.85. The Standard & Poor's 500 Index .SPX was down 6.12 points, or 0.37 percent, at 1,646.23. The Nasdaq Composite Index .IXIC was down 10.44 points, or 0.29 percent, at 3,603.16.

"I believe tapering is going to begin in September because it has to. The market needs to adjust to the beginning of getting back to normal on rates," said Doug Cote, chief market strategist at ING U.S. Investment Management in New York.

Adding to the view that the Fed will begin to taper next month, U.S. home resales rose in July to the highest level in over three years, suggesting sharply rising borrowing costs are having only a limited impact on the housing market's recovery.

The National Association of Realtors said on Wednesday that existing home sales jumped 6.5 percent, well above analysts' expectations, to an annual rate of 5.39 million units.

Analysts said the August nonfarm payrolls data, due on September 6, will be closely watched by investors and policymakers to determine whether improvement in the U.S. labor market is enough to justify scaling back stimulus.

German 10-year bond yields rose as high as 1.892 percent, just below levels on Monday that were the highest since March 2012, and last yielded about 1.87 percent.

German Bund futures settled 47 ticks lower at 140.14.

The benchmark 10-year U.S. Treasury note was down 2/32 in price to yield 2.8253 percent.

Half the economists polled by Reuters expect the Federal Open Market Committee to begin slowing its asset purchases from September.

The euro was down 0.31 percent at $1.3375. The dollar index, which measures the greenback versus a basket of six currencies, rose 0.34 percent to 81.179 .DXY.

Against the yen, the dollar rose 0.34 percent to 97.59.

Brent crude oil fell below $110 a barrel on reports some Libyan oil exports might soon resume and on news the Seaway crude oil pipeline had shut, halting shipments from the U.S. Midwest to the Gulf Coast.

Brent futures for October were down 36 cents at $109.79 a barrel. U.S. October oil was $1.40 lower at $103.71 a barrel.

(Additional reporting by Richard Hubbard in London; Editing by Bernadette Baum and Dan Grebler)

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Global stocks, emerging currencies hit as Fed minutes near

1 of 7. Traders work on the floor of the New York Stock Exchange August 21, 2013.

Credit: Reuters/Brendan McDermid

By Herbert Lash

NEW YORK | Wed Aug 21, 2013 1:10pm EDT

NEW YORK (Reuters) - Global equity markets slid for a fifth day on Wednesday and the dollar strengthened ahead of a report from the latest Federal Reserve policy-setting meeting that is expected to hint, at the least, of a pullback of economic stimulus in September.

Most U.S., European and emerging market stocks fell, as did U.S. Treasury and German bond prices, amid caution ahead of the release of the Fed's minutes from its July 30-31 meeting at 2 p.m. EDT.

The dollar edged higher from a six-month low against the euro and gained versus the yen as traders bet the minutes will reinforce expectations of a pullback in the Fed's bond-buying program aimed at spurring growth by keeping interest rates low.

Investors are looking for insight on how and when the Fed will begin to cut back on its bond buying, said Wilmer Stith, co-manager of the Wilmington Broad Market Bond Fund in Baltimore.

"Even if we don't really get anything out of the minutes that sheds new light on the question, at the end of the day people are getting set up for a tapering event in September," Stith said.

MSCI's all-country stock index .MIWD00000PUS was down 0.61 percent at 367.96, while the pan-European FTSEurofirst 300 index .FTEU3 of top regional shares closed down 0.6 percent at 1,207.71.

The Dow Jones industrial average .DJI was down 62.14 points, or 0.41 percent, at 14,940.85. The Standard & Poor's 500 Index .SPX was down 6.12 points, or 0.37 percent, at 1,646.23. The Nasdaq Composite Index .IXIC was down 10.44 points, or 0.29 percent, at 3,603.16.

"I believe tapering is going to begin in September because it has to. The market needs to adjust to the beginning of getting back to normal on rates," said Doug Cote, chief market strategist at ING U.S. Investment Management in New York.

Adding to the view that the Fed will begin to taper next month, U.S. home resales rose in July to the highest level in over three years, suggesting sharply rising borrowing costs are having only a limited impact on the housing market's recovery.

The National Association of Realtors said on Wednesday that existing home sales jumped 6.5 percent, well above analysts' expectations, to an annual rate of 5.39 million units.

Analysts said the August nonfarm payrolls data, due on September 6, will be closely watched by investors and policymakers to determine whether improvement in the U.S. labor market is enough to justify scaling back stimulus.

German 10-year bond yields rose as high as 1.892 percent, just below levels on Monday that were the highest since March 2012, and last yielded about 1.87 percent.

German Bund futures settled 47 ticks lower at 140.14.

The benchmark 10-year U.S. Treasury note was down 2/32 in price to yield 2.8253 percent.

Half the economists polled by Reuters expect the Federal Open Market Committee to begin slowing its asset purchases from September.

The euro was down 0.31 percent at $1.3375. The dollar index, which measures the greenback versus a basket of six currencies, rose 0.34 percent to 81.179 .DXY.

Against the yen, the dollar rose 0.34 percent to 97.59.

Brent crude oil fell below $110 a barrel on reports some Libyan oil exports might soon resume and on news the Seaway crude oil pipeline had shut, halting shipments from the U.S. Midwest to the Gulf Coast.

Brent futures for October were down 36 cents at $109.79 a barrel. U.S. October oil was $1.40 lower at $103.71 a barrel.

(Additional reporting by Richard Hubbard in London; Editing by Bernadette Baum and Dan Grebler)

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Analysis: Central Europe sheltered from emerging markets sell-off

The WIG20 index graph is seen on screen at the Warsaw Stock Exchange October 3, 2012.

Credit: Reuters/Kacper Pempel

By Marcin Goettig and Sujata Rao

WARSAW/LONDON | Thu Aug 22, 2013 10:38am EDT

WARSAW/LONDON (Reuters) - The currencies of emerging European countries such as Poland and Hungary have dodged the giant selloffs hitting other emerging markets, and their links to a steadily recovering euro zone are likely to keep them insulated.

For years, Europe's slump and cautious monetary rules have dragged down economic growth in the region, making these countries less exciting for investors than destinations in Asia and Latin America. Now that curse is turning into a blessing.

Former investor darlings such as Brazil and India have seen currencies tumble as investors flee their stocks and bond markets in fear of a sharp growth slowdown. Their peers in central Europe, however, are largely holding steady.

Hit by the U.S. Federal Reserve's plans to reduce the flow of cheap money it pumps into the global economy, currencies such as South Africa's rand, India's rupee and Brazil's real have fallen 15-18 percent against the dollar this year.

By contrast, Poland's zloty has eased 3 percent against the dollar since January, while Hungary's forint, considered the riskiest regional bet because of Prime Minister Victor Orban's unorthodox policies, is down 2 percent

"This is due to a combination of a better outlook for core Europe, where the economy seems to be recovering, and an improvement in the underlying fundamentals of most of these countries," said Thanasis Petronikolos, head of emerging debt at Baring Asset Management in London.

He said his investment portfolio was factoring in that central Europe would perform better than emerging markets in Asia and some in Latin America.

No doubt, there are some clouds on central Europe's horizon - uncertainty about the impact of upcoming Fed measures and political instability ahead of elections next year.

But barring surprises and as long as the euro recovery stays on course, the region could stay stable for currency investors.

"We expect CEE currencies to continue to outperform other emerging markets until the end of next year," says Commerzbank currency strategist Lutz Karpowitz.

EURO ZONE ORBIT

Germany, the powerhouse of the euro zone and the source of most of emerging Europe's investment, posted forecast-beating business sentiment data on Thursday, leading improvements across the single currency bloc.

As the euro zone starts to emerge from recession, that translates into more growth for its central European neighbors, and therefore stable currencies.

Carmaker Daimler's (DAIGn.DE) plant in Hungary, which makes the Mercedes CLA coupe, illustrates the link: it is estimated to account for nearly one percent of Hungary's economic output, and its sales helped pull the country out of recession.

As European Union members, Poland, Hungary and the Czech Republic are bound by the bloc's rules on fiscal consolidation. For the past several years, that has constrained their governments from running big deficits to boost growth.

But it also means countries in the region have small current account deficits, and some, like Hungary, even run a surplus. That spares their currencies the risk of a sharp decline if flows of foreign capital needed to fund a trade imbalance were to dry up.

An example of a currency hit by a current account deficit is the Indian rupee: with a gap equal to almost 5 percent of its economic output, the currency has fallen 15 percent this year, marking successive record lows in the past three months.

By comparison, Poland's current account deficit has shrunk to 1.9 percent of gross domestic product (GDP) from 5 percent in less than three years.

Hungary's current account surplus acts as a counter-weight to the perceived risks of Orban's policies, which include slapping heavy taxes on foreign banks.

"Countries with relatively good growth and few funding issues will do fine," said Carlin Doyle, emerging markets strategist at State Street Global Investments.

"Countries like South Africa and Turkey look a bit vulnerable, but Hungary does not have funding issues."

RISKS

Central Europe is not entirely without risk, however. Economic recovery could be hit if foreign banks, under pressure to fix their balance sheets, keep cutting lending to the region. Many banks in these countries are fully or partly owned by western parents [ID:nL6N0G04NQ].

Poland faces elections in 2015 and opinion polls show Prime Minister Donald Tusk will lose. Investors see him as a guarantor of stability and predictable policies.

And while the zloty and forint have not been as sensitive to the Fed signals so far, they would not withstand a widespread market panic, analysts say, noting that even relatively "safe" assets such as the Mexican peso and Korean won have fallen prey to the storm in recent days.

Poland, with its large and liquid financial markets would be most at risk if redemptions from emerging market funds spiral.

"If the wave spreads, these countries will also get hit," said Societe Generale strategist Guillaume Salomon. "The difference is they will sell off less than other markets."

(Additional reporting by Carolyn Cohn in London)

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Emerging market sell-off worsens, more pain ahead

An employee poses with the bundles of Indian rupee notes inside a bank in Agartala, the capital of India's northeastern state of Tripura August 22, 2013.

Credit: Reuters/Jayanta Dey

By Sujata Rao

LONDON | Thu Aug 22, 2013 7:33am EDT

LONDON (Reuters) - Heavy selling engulfed emerging markets again on Thursday with more currencies falling prey to fears of higher global borrowing costs and a reduction in cheap cash supplies from the United States.

While the Indian rupee and Turkish lira skidded to new record lows against the dollar and the Indonesian rupiah slumped to fresh four-year lows, currencies such as the Mexican peso and the Korean won that have so far been spared the worst of the recent selloff, are also now feeling the heat.

Market expectations that the U.S. Federal Reserve will start cutting back its $85 billion-a-month money printing program from September were maintained after minutes from the U.S. central bank's July meeting gave little new guidance on timing. That drove a fresh spike in U.S. 10-year yields, the risk-free rate against which all assets, including emerging markets, are benchmarked.

"U.S. yields will go higher - that is obvious - and no one wants to be exposed to assets in emerging markets which are very sensitive to U.S. monetary policy," said Maarten-Jan Bakkum, investment strategist for ING Investment Management's emerging market funds.

As U.S. Treasury yields hit new two-year highs - they stand around 120 basis points higher than early-May levels - more and more investors dumped emerging assets.

Emerging equities fell for the fifth straight session to bring 2013 losses to 13 percent .MSCIEF. Bonds in emerging currencies also sold off with average yields at almost 7 percent on the main GBI-EM index - the highest in more than two years.

Currency weakening accelerated, forcing central banks to step up their efforts to stem it.

Turkey pledged to increase dollar sales to sell $350 million on Thursday after the lira hit a record low for the second day in a row but analysts called for more steps. Turkish stocks shed over 2 percent .XU100 while bond yields rose.

"We expect further interest rate hikes or even an emergency monetary policy meeting," said Ali Cakiroglu, a strategist at HSBC in Istanbul.

Earlier, the Indian rupee fell another 1.5 percent to plumb a new low past 65 per dollar, bringing losses since the start of this week to around 5 percent.

Indonesia too suffered fresh losses and capital outflows, triggering a warning from Fitch that weak policy management could affect credit ratings for it and for India

Brazil will offer $4 billion on the spot market on Thursday, boosting its efforts to curb the real's losses. The currency has tumbled to near five-year lows despite some $30 billion in central bank interventions via the swap markets.

The rand slumped to a new four-year low

MORE EMERGING MARKETS HIT

ING's Bakkum said bearishness had now extended beyond India, South Africa, Turkey, Indonesia and Brazil - markets that were hit first because of their reliance on foreign capital.

"The five that were in focus so far are obvious victims as they need external capital to fund themselves but there are also worries about economic growth," he said.

"Countries such as Thailand and Mexico that had strong capital inflows and credit growth are also looking vulnerable as their growth expectations were based on assumptions of strong capital flows."

Data from Malaysia confirmed the worsening fundamentals of emerging markets, showing an economic slowdown and an evaporating current account surplus. That pushed the ringgit to three-year lows.

The Thai baht too fell to three-year lows, forcing the central bank to reassure markets it would act if needed, while the Korean won fell to two-week lows.

Selling has also hit the Mexican peso which lost 2 percent on Wednesday while Russia's rouble sank to almost a four-year low versus a euro-dollar basket and data showed central bank dollar sales of $3.7 billion in August.

Analysts are reluctant to call the end of the selloff. Of the trillions of dollars that flooded into emerging markets over the past decade, they note that very little has actually exited, indicating scope for more huge outflows.

Data from Lipper, a Thomson Reuters company, shows that in the three months to end-July, global emerging equity funds it tracks saw net outflows of about $8 billion. That equates to just under 2 percent of total assets under management.

Funds dedicated to emerging dollar debt have shed a net $1 billion this year compared to $124 billion in assets, it says.

"In the medium and long term we are positive about emerging markets. Flows into the asset class reflect a structural rather than cyclical change in global asset allocation," said Thanasis Petronikolos, head of emerging debt at Baring Asset Management.

"But in the short term there will be more fluctuations."

(For GRAPHIC on MSCI emerging index performance 2013, see link.reuters.com/weh36s

(Additional reporting by Joel Dimmock in London; editing by Stephen Nisbet)

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Emerging markets selloff intensifies after Fed, data lifts Europe shares

1 of 7. Traders work on the floor of the New York Stock Exchange August 21, 2013.

Credit: Reuters/Brendan McDermid

By Herbert Lash

NEW YORK | Thu Aug 22, 2013 12:28pm EDT

NEW YORK (Reuters) - Global equity markets gained and bond prices fell on Thursday after business surveys from around the world revealed a global economy in expansion, helping cement expectations the Federal Reserve will trim its bond-buying stimulus program in September.

Purchasing managers surveys showed better-than-expected growth in the euro zone, a rebound in China's vast manufacturing sector and U.S. manufacturing activity rising to a five-month high in August.

Data from the U.S. Labor Department also showed the number of Americans filing new claims for jobless benefits held near a six-year low last week, adding to signs the U.S. economy is starting to find a firmer footing.

While weekly initial claims for state unemployment benefits climbed 13,000 to 336,000 - just above the level expected by economists in a Reuters poll - the four-week moving average fell to its lowest level since November 2007.

The four-week average, seen as a better gauge of labor market trends, suggested the U.S. economy was growing enough to fuel steady improvement in jobs data.

However, the report did not change the view that the Fed will begin to trim, or taper, its monetary stimulus next month.

"The Fed tapering theme continues. Yesterday's Fed minutes reinforced expectations that the Fed will taper its quantitative easing program in September and today's jobless claims didn't really change that," said Greg Moore, a currency strategist at TD Securities in Toronto.

"The jobless claims rose, but they were not really that far off from the consensus forecast."

Global equity markets rose, with major European indexes up more than 1 percent.

MSCI's all-country world index .MIWD00000PUS rose 0.46 percent, while the FTSEurofirst 300 .FTEU3 index of top European shares rose 0.94 percent to close at a provisional 1,219.03.

The Dow Jones industrial average .DJI was last up 46.33 points, or 0.31 percent, at 14,943.88. The Standard & Poor's 500 Index .SPX was up 10.27 points, or 0.63 percent, at 1,653.07. The Nasdaq Composite Index .IXIC was up 30.08 points, or 0.84 percent, at 3,629.87. .N

European shares snapped a three-session losing streak after manufacturing survey data for August suggested that growth was taking root in the euro zone.

Markit's Flash Composite Purchasing Managers' Index showed business activity across the euro zone picked up at a faster pace than expected, bouncing to 51.7 from last month's 50.5.

"If you want to understand whether there is a positive or a negative outlook for equities, then PMIs are quite a good measure. We've seen a gradual improvement in PMIs since last July and now we're in growth territory," said James Butterfill, global equity strategist at Coutts.

German yields hit their highest since March 2012 as investors sold low-risk Bunds after forecast-beating business activity data and on expectations the Federal Reserve would soon slow its stimulus.

Ten-year German yields rose as high as 1.943 percent, and closed 4 basis points higher at 1.92 percent.

U.S. government debt prices also fell, pushing yields up. The benchmark 10-year Treasury note fell 4/32 in price to yield 2.9066 percent.

The dollar hit a more than two-week high against the yen at 98.80 yen, breaking past the August 15 peak of 98.66 yen, which had acted as initial resistance. It was last trading at 98.53 yen, up 0.89 percent.

The euro pared losses to trade near break-even. It was last up 0.02 percent at $1.3359.

Brent crude hovered near $110 a barrel as the upbeat data from China and the euro zone rekindled hopes for stronger demand from two of the world's largest energy consumers, while oil exports from Libya remained limited by strikes and unrest.

October Brent crude was last down 12 cents at $109.69 a barrel. U.S. crude gained 72 cents at $104.57.

(Additional reporting by Richard Hubbard; editing by Dan Grebler, G Crosse)

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Global stocks, emerging currencies hit as Fed minutes near

1 of 7. Traders work on the floor of the New York Stock Exchange August 21, 2013.

Credit: Reuters/Brendan McDermid

By Herbert Lash

NEW YORK | Wed Aug 21, 2013 1:10pm EDT

NEW YORK (Reuters) - Global equity markets slid for a fifth day on Wednesday and the dollar strengthened ahead of a report from the latest Federal Reserve policy-setting meeting that is expected to hint, at the least, of a pullback of economic stimulus in September.

Most U.S., European and emerging market stocks fell, as did U.S. Treasury and German bond prices, amid caution ahead of the release of the Fed's minutes from its July 30-31 meeting at 2 p.m. EDT.

The dollar edged higher from a six-month low against the euro and gained versus the yen as traders bet the minutes will reinforce expectations of a pullback in the Fed's bond-buying program aimed at spurring growth by keeping interest rates low.

Investors are looking for insight on how and when the Fed will begin to cut back on its bond buying, said Wilmer Stith, co-manager of the Wilmington Broad Market Bond Fund in Baltimore.

"Even if we don't really get anything out of the minutes that sheds new light on the question, at the end of the day people are getting set up for a tapering event in September," Stith said.

MSCI's all-country stock index .MIWD00000PUS was down 0.61 percent at 367.96, while the pan-European FTSEurofirst 300 index .FTEU3 of top regional shares closed down 0.6 percent at 1,207.71.

The Dow Jones industrial average .DJI was down 62.14 points, or 0.41 percent, at 14,940.85. The Standard & Poor's 500 Index .SPX was down 6.12 points, or 0.37 percent, at 1,646.23. The Nasdaq Composite Index .IXIC was down 10.44 points, or 0.29 percent, at 3,603.16.

"I believe tapering is going to begin in September because it has to. The market needs to adjust to the beginning of getting back to normal on rates," said Doug Cote, chief market strategist at ING U.S. Investment Management in New York.

Adding to the view that the Fed will begin to taper next month, U.S. home resales rose in July to the highest level in over three years, suggesting sharply rising borrowing costs are having only a limited impact on the housing market's recovery.

The National Association of Realtors said on Wednesday that existing home sales jumped 6.5 percent, well above analysts' expectations, to an annual rate of 5.39 million units.

Analysts said the August nonfarm payrolls data, due on September 6, will be closely watched by investors and policymakers to determine whether improvement in the U.S. labor market is enough to justify scaling back stimulus.

German 10-year bond yields rose as high as 1.892 percent, just below levels on Monday that were the highest since March 2012, and last yielded about 1.87 percent.

German Bund futures settled 47 ticks lower at 140.14.

The benchmark 10-year U.S. Treasury note was down 2/32 in price to yield 2.8253 percent.

Half the economists polled by Reuters expect the Federal Open Market Committee to begin slowing its asset purchases from September.

The euro was down 0.31 percent at $1.3375. The dollar index, which measures the greenback versus a basket of six currencies, rose 0.34 percent to 81.179 .DXY.

Against the yen, the dollar rose 0.34 percent to 97.59.

Brent crude oil fell below $110 a barrel on reports some Libyan oil exports might soon resume and on news the Seaway crude oil pipeline had shut, halting shipments from the U.S. Midwest to the Gulf Coast.

Brent futures for October were down 36 cents at $109.79 a barrel. U.S. October oil was $1.40 lower at $103.71 a barrel.

(Additional reporting by Richard Hubbard in London; Editing by Bernadette Baum and Dan Grebler)

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Global stocks, emerging currencies hit as Fed minutes near

1 of 7. Traders work on the floor of the New York Stock Exchange August 21, 2013.

Credit: Reuters/Brendan McDermid

By Herbert Lash

NEW YORK | Wed Aug 21, 2013 1:10pm EDT

NEW YORK (Reuters) - Global equity markets slid for a fifth day on Wednesday and the dollar strengthened ahead of a report from the latest Federal Reserve policy-setting meeting that is expected to hint, at the least, of a pullback of economic stimulus in September.

Most U.S., European and emerging market stocks fell, as did U.S. Treasury and German bond prices, amid caution ahead of the release of the Fed's minutes from its July 30-31 meeting at 2 p.m. EDT.

The dollar edged higher from a six-month low against the euro and gained versus the yen as traders bet the minutes will reinforce expectations of a pullback in the Fed's bond-buying program aimed at spurring growth by keeping interest rates low.

Investors are looking for insight on how and when the Fed will begin to cut back on its bond buying, said Wilmer Stith, co-manager of the Wilmington Broad Market Bond Fund in Baltimore.

"Even if we don't really get anything out of the minutes that sheds new light on the question, at the end of the day people are getting set up for a tapering event in September," Stith said.

MSCI's all-country stock index .MIWD00000PUS was down 0.61 percent at 367.96, while the pan-European FTSEurofirst 300 index .FTEU3 of top regional shares closed down 0.6 percent at 1,207.71.

The Dow Jones industrial average .DJI was down 62.14 points, or 0.41 percent, at 14,940.85. The Standard & Poor's 500 Index .SPX was down 6.12 points, or 0.37 percent, at 1,646.23. The Nasdaq Composite Index .IXIC was down 10.44 points, or 0.29 percent, at 3,603.16.

"I believe tapering is going to begin in September because it has to. The market needs to adjust to the beginning of getting back to normal on rates," said Doug Cote, chief market strategist at ING U.S. Investment Management in New York.

Adding to the view that the Fed will begin to taper next month, U.S. home resales rose in July to the highest level in over three years, suggesting sharply rising borrowing costs are having only a limited impact on the housing market's recovery.

The National Association of Realtors said on Wednesday that existing home sales jumped 6.5 percent, well above analysts' expectations, to an annual rate of 5.39 million units.

Analysts said the August nonfarm payrolls data, due on September 6, will be closely watched by investors and policymakers to determine whether improvement in the U.S. labor market is enough to justify scaling back stimulus.

German 10-year bond yields rose as high as 1.892 percent, just below levels on Monday that were the highest since March 2012, and last yielded about 1.87 percent.

German Bund futures settled 47 ticks lower at 140.14.

The benchmark 10-year U.S. Treasury note was down 2/32 in price to yield 2.8253 percent.

Half the economists polled by Reuters expect the Federal Open Market Committee to begin slowing its asset purchases from September.

The euro was down 0.31 percent at $1.3375. The dollar index, which measures the greenback versus a basket of six currencies, rose 0.34 percent to 81.179 .DXY.

Against the yen, the dollar rose 0.34 percent to 97.59.

Brent crude oil fell below $110 a barrel on reports some Libyan oil exports might soon resume and on news the Seaway crude oil pipeline had shut, halting shipments from the U.S. Midwest to the Gulf Coast.

Brent futures for October were down 36 cents at $109.79 a barrel. U.S. October oil was $1.40 lower at $103.71 a barrel.

(Additional reporting by Richard Hubbard in London; Editing by Bernadette Baum and Dan Grebler)

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