Emerg­ing mar­kets rocky, dol­lar dips be­fore Fed min­utes


Fears about China's econ­omy kept emerg­ing mar­kets un­der heavy pres­sure on Wed­nes­day, while the dol­lar eased as traders waited on min­utes from last month's Fed­eral Re­serve meet­ing for any hints on U.S. rate hike plans.

On another roller­coaster day in Asia, Chi­nese shares plunged again be­fore end­ing higher, Viet­nam de­val­ued its cur­rency and Ja­pan's Nikkei .N225 took its big­gest fall in more than a month.

Europe started with its main eq­uity mar­kets down be­tween 1.1 to 1.6 per­cent and safe-haven gov­ern­ment bonds back in fa­vor as Ger­many's par­lia­ment also pre­pared to vote on Greece's latest bailout.

The dol­lar . DXY weak­ened broadly pend­ing the Fed's min­utes and U.S. in­fla­tion data that could also sig­nal whether the cen­tral bank is on track to raise in­ter­est rates next month.

It would be the first rise in al­most a decade, but rocky emerg­ing mar­kets and a re­newed slump in com­mod­ity prices that will drag on in­fla­tion is rais­ing doubts about the tim­ing.

"The mar­kets are mov­ing to­wards what are the Fed go­ing to do: will it be Septem­ber, will it be De­cem­ber?" said Gavin Friend at Na­tional Aus­tralia Bank in Lon­don.

"That said, the thing ev­ery­body is watch­ing on a day-to-day ba­sis is the whole EM com­plex. There are all sorts of wob­bles go­ing on in China and the mar­ket is all over the place."

The Shang­hai and Shen­zhen mar­kets .SSEC.CSI300 fell more than 4 per­cent early on, but state-backed buy­ers later in the day en­abling both to fin­ish up more than 1.2 per­cent.

It is a pat­tern that has been re­peated sev­eral times since Bei­jing's "na­tional team", a coali­tion of state-backed fi­nan­cial in­sti­tu­tions and reg­u­la­tors, went into ac­tion early last month with in­struc­tions to halt a crash in share prices.

Af­ter last week's de­val­u­a­tion, spot yuan CNY=CFXS was chang­ing hands at 6.3993 per dol­lar, slightly weaker than Tues­day's close of 6.3938.

"We think yesterday's stock mar­ket crash (in China) re­in­forced yuan de­pre­ci­a­tion sen­ti­ment, which will en­cour­age more cap­i­tal out­flows, ne­ces­si­tat­ing more open mar­ket oper­a­tions and ul­ti­mately a re­serve re­quire­ment ra­tio cut in the cur­rent quar­ter," strate­gists at ING wrote.

Oil fell again af­ter its brief bounce on Tues­day, weighed down by prospects of U.S. de­mand weak­en­ing in au­tumn and the slow­down in Asia's lead­ing economies.

U.S. crude fu­tures CLc1 were down 0.6 per­cent at $42.38 per bar­rel, edg­ing back to­wards a 6-1/2-year low of $41.35 struck on Fri­day. Brent crude LCOc1 was down 0.5 per­cent at $48.56 a bar­rel and in reach of 6-1/2-month troughs.

But cop­per prices CMCU3, which had slid to a six-year low of $4,983 a tonne, break­ing the psy­cho­log­i­cal $5,000 level, re­cov­ered to $5,028.

Gold XAU=, one of the few met­als to ben­e­fit from the EM tur­moil, was up a tick at $1,120 an ounce.

Euro-watch­ers are fo­cused on how big a re­bel­lion Ger­many's An­gela Merkel will face over another Greek bailout, which nev­er­the­less is ex­pected to get back­ing.

The euro, helped by the dol­lar's dip, traded at $1.1052 EUR=, hav­ing hit a one-week low of $1.1016 on Tues­day. Ster­ling was steady at 1.5670 while the yen JPY= inched up to 124.28 to the dol­lar. "Another uptick in the U.S. Con­sumer Price In­dex may spark a sell­off in EUR/USD as mar­ket par­tic­i­pants ramp up bets for a Fed rate hike at the Sept. 17 in­ter­est rate de­ci­sion," said David Song, cur­rency an­a­lyst at Dai­lyFX. "How­ever, the re­newed de­cline in oil prices may drag."

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