Asian markets rally on hopes of US-China talks, Turkey rate hike

Signs of movement in the US-China trade stand-off and a bumper interest rate hike in emerging market (EM) trouble spot Turkey sent global shares higher on Thursday, as risk appetite returned.

News that US President Donald Trump’s administration had sent feelers to Beijing for a new round of trade talks rallied Asian stocks after several torrid weeks, which included the region’s longest losing streak since 2000.

Shanghai, Tokyo and Jakarta stocks all gained around 1 per cent and Hong Kong's Hang Seng closed up 2.5 per cent as China’s yuan also edged higher.

Europe followed, with 0.2-0.6 per cent rises for German, French, Italian and Spanish shares, offsetting the impact of FTSE in London, which was being held back by weak oil and tobacco stocks. EMs also made ground as Turkey's central bank made a rare show of independence. The bank ignored a fresh bashing from President Tayyip Erdogan and hiked interest rates by 625 basis points to 24 per cent.

“There have been a lot of obvious headwinds to risk appetite over the summer,” said Michael Metcalfe, head (global macro strategy) at State Street Global Markets. “I just get the sense we are beginning to see some light through the clouds this week.”
Washington’s invitation for trade talks received a thumbs-up from Beijing and came as a relief after Trump had threatened to impose tariffs on practically all imports from China, in the absence of significant concessions.

The day’s big move was Turkey’s lira, which swung almost 6 per cent in a wild few hours. It had fallen 3 per cent after President Erdogan had called for rate cuts rather than hikes, and then surged to rise 3 per cent on the day those calls were spectacularly ignored.

The lira’s rally comes after a more than 40 per cent slump against the dollar so far this year, hit by worries over President Tayyip Erdogan's hold over monetary policy and by a diplomatic spat between Ankara and Washington.

“Hiking today does get Turkey on the slow road to recovering some monetary policy credibility, and that is critical,” said Brett Diment, head of Emerging Market Debt, Aberdeen Standard Investments.

         
"If they hadn’t hiked today, the real risk was that the lira would sell off sharply again and the country would swiftly head towards a balance of payments and even a banking crisis."

Most euro zone government bond yields were little changed meanwhile, with the market largely sidelined ahead of the European Central Bank meeting and news conference.