Emerging market assets gain ahead of US Fed meeting

Emerging market stocks were set to snap a four-day losing run on Tuesday, while developing world currencies edged firmer against the dollar as cautious optimism crept into markets ahead of the start of the US Federal Reserve’s two-day meeting.

The Fed is scheduled to give its decision on interest rates on Wednesday and, according to Refinitiv Eikon, markets are pricing in an about 25% probability of a rate cut, a supportive factor for emerging market assets should it materialise.

“Tomorrow’s FOMC (decision) hangs over the markets, and today ought to be quiet, but there’s an air of nervousness around,” Kit Juckes, global fixed income strategist at Societe Generale, wrote in a note.

MSCI’s developing world stocks index rose 0.4%, a gain matched by Chinese blue-chips.

Stocks in Hong Kong gained 1%, continuing to recover ground lost last week when protests against an extradition bill plunged them into uncertainty.

Taiwanese equities added 0.3%, while their South Korean peers rose 0.4%.

MSCI’s emerging market currencies index ticked marginally firmer. South Korea’s won firmed in onshore trade, while China’s yuan softened 0.1%.

Turkish stocks rose 0.2% and the lira was slightly stronger, with one-week implied volatility on the dollar-lira currency pair rising ahead of the re-run of Istanbul mayoral elections this weekend.

The Turkish central bank on Monday said it will extend a liquidity facility to its primary dealer banks, with an interest rate set at 23%, adding the facility will be limited in part by the amount of domestic government debt securities bought by the banks through treasury auctions.

Credit Suisse’s Berna Bayazitoglu noted the central bank’s announcement said the liquidity facility will have a limited share within the overall central bank funding.

“We think the reference to ‘a limited share’ without quantifying it adds to the list of non-transparent measures that have characterised economic policy since the autumn of last year.”

Russia’s rouble was little changed, while Moscow-traded stocks advanced 0.4%, propped up by materials firms such as Severstal, which rose 1.1%.

South Africa‘s rand firmed, while equities rose 0.5% as they re-opened for trade following a market holiday on Monday.

Read: Rand little changed in early trade

Locally listed shares of Old Mutual gained about 2%. The insurer said it had fired Peter Moyo, its suspended chief executive, citing a conflict of interest with an investment firm he founded.

Moyo did not reply to a number of messages seeking comment. He told Reuters following his suspension there had been no wrongdoing on his part.

Read: Old Mutual fires suspended CEO Moyo

Most emerging European currencies traded in narrow ranges against the euro, which itself was weakened by European Central Bank President Mario Draghi’s dovish comments.