Stocks are firm with all eyes on the Fed; Ukrainian hryvnia at four-year low

Jan 26 (Reuters) – Emerging market stocks firmed on Wednesday, with all eyes on the U.S. Federal Reserve’s policy statement later in the session, while the Ukrainian hryvnia fell as Russia continued its military reinforcement near its neighbour.

The MSCI Emerging Equity Index (.MSCIEF) rose 0.1% after a three-day rout in which it lost about 3.6%.

An index of Asian stocks (.MIAPJ0000PUS) remained flat, torn between losses in Taiwan (.TWII) and South Korea (.KS11), and gains in mainland China (.SSEC), (.CSI300) and Hong Kong tech (.HSTECH) ahead of the Lunar New Year holiday.

Major indexes in Russia (.IMOEX), South Africa (.JTOPI), Poland (.WIG) and Saudi Arabia (.TASI) all rose 0.6% and 2%.

Developing world currencies (.MIEM00000CUS) made small moves, as did the dollar, as investors awaited more clarity from the Fed amid speculation that its first interest rate hike of the year could be brought forward to the meeting ending Wednesday.

Although a 25 basis point rate hike in March is priced in, investors are looking for clarity on the size, pace and number of hikes for the year as inflation rises. The decision is expected at 2 p.m. ET (1900 GMT).

“Fed Chairman Jerome Powell will likely try not to provide concrete statements on the rate cycle at this point so they can make a data-driven decision over the next few months,” Antje Praefcke said. , FX and EM analyst at Commerzbank.

Rising US rates are reducing the appeal of riskier emerging market assets, especially those with high external debt. Currencies are seeing interest rate differentials narrow, making them attractive for carry trade.

The International Monetary Fund on Tuesday lowered its global economic growth forecast for 2022, noting that Fed tightening could delay the recovery in Asia. Read more

But foreign investors are flocking to China in early 2022, seeing it as a safe haven from the inflation, growth and pandemic issues plaguing most other markets. Read more

The IMF also warned that a Russian-Ukrainian military conflict would keep inflation higher for longer via rising energy and commodity costs. Read more

The US and UK have said they may consider imposing personal sanctions on Putin if Russia were to invade Ukraine. Moscow has launched a new series of naval exercises to rehearse the protection of the Arctic shipping lane, while continuing to build up troops near Ukraine. Read more

The Russian ruble swung between small losses and gains at Tuesday’s close, while the Ukrainian hryvnia slipped to its lowest level in four years at 28.83 to the dollar.

Political advisers from Russia, Ukraine, France and Germany are due to meet in Paris, while Putin and Frenchman Emmanuel Macron are due to hold talks on Friday.

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For the GRAPH on the performance of the MSCI emerging index in 2021, see https://tmsnrt.rs/2OusNdX

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Reporting by Susan Mathew in Bengaluru; Editing by Kim Coghill

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