The Wall Stree Journal reports,after a week of nervous selling in emerging market currencies and a relentless selloff in U.S. stocks, there are signs Tuesday that markets are stabilizing. In Asia the trading day went off relatively calmly and in Europe the Turkish lira has stabilized after the central bank said it would hold an emergency meeting later tonight. (See the “Coming Up” section). Meanwhile, more positive signals out of European data sources have helped to remind investors of the relatively improved economic backdrop in that part of the world.
It’s clear, however, that the market turmoil is putting pressure on central banks to take aggressive actions that don’t necessarily fit with the underlying state of their economies. In addition to Turkey’s action, the Reserve Bank of India surprised observers by hiking rates today, a move that was no doubt at least partly triggered by the heavy selling pressure on the rupee, and others, such as Indonesia’s central bank, are expected to follow. Yet for now the global investment community’s eyes are most firmly fixed on the U.S., where President Obama delivers his State of the Union speech tonight and, most important, the Federal Reserve begins a two-day meeting. The Fed had been expected to announce another $10 billion reduction in its bond-buying program tomorrow, but this stress in financial markets has become a wild card. It could well choose to stand pat, a move that would be welcomed with great relief in emerging markets.
