Equities edge higher as planned China-US talks soothe traders’ nerves

“There is still a great deal of difference between agreeing to talk and coming to an agreement,” said CMC Markets analyst Michael Hewson.

“For now it appears an escalation has become less likely, hence yesterday’s rebound in equity markets,” he said, referring to an overnight rally on Wall Street.

Turkey’s lira, meanwhile, dropped nearly 3% to almost six to the dollar again, having recovered ground rapidly in recent days.

The currency plunged to a record low of 7.24 to the dollar at the start of the week as a worsening of relations between Turkey and the US added to losses driven by concerns over President Tayyip Erdogan’s influence over monetary policy. The currency has lost a third of its value so far in 2018.

“To declare with confidence that the worst is over for the lira the central bank would have to act decisively on September 13 (or earlier if the selling pressure on the lira resurfaces), diplomatic tension with the US would have to ease and prudent fiscal measures and structural reforms would have to be swiftly implemented,” Rabobank strategists wrote in a note to clients.

Turkey’s central bank meets next on September 13. Ratings agency S&P Global Ratings is also scheduled to release a review of Turkey’s sovereign credit rating after the market closes on Friday.

Memories of past emerging-market crises, such as the Asian financial crisis of 1997 and Turkey’s 2001 crisis, came back to haunt investors this week and prompted a wave of selling across emerging-market assets as a whole.

The three bears

Global stocks also suffered this week as the sell-off spilt into developed markets, adding to the angst over US-China trade relations and the fiscal prudence of Italy’s anti-establishment government.

Emerging-market stocks entered a technical bear market as the sell-off intensified, registering a 20% drop.