The MSCI World index climbed almost 1%, its best day in four weeks, while the MSCI Asia ex-Japan index snapped a six-day losing streak. Together with lower oil prices, falling market volatility and a generally weaker dollar, this augers well for Asian equity markets and risk appetite on Wednesday.
Asian exchange rates will be under the spotlight, however, with traders wary of more warnings and action from some policymakers over the speed with which their currencies are falling.
Japanese officials on Tuesday said they are closely monitoring the yen’s slide, which took it through 144.00 per dollar for the first time since last November and closer to the territory where Tokyo intervened buying yen last September and October.
Meanwhile, China took forceful action against a sliding currency for the first time in nearly eight months, with the country’s state banks acting to put a floor under the yuan even as officials pledged more stimulus for the flagging economy.
Together with the central bank’s stronger-than-expected trading band for the yuan, this is the strongest sign yet the authorities are growing increasingly uncomfortable with the yuan’s quickening slide.
Beijing may be better equipped to steer the yuan where it wants, as it already closely manages the currency. But the yen is free floating, and unless Tokyo backs up rhetoric with actual and forceful intervention, FX markets may keep on pushing the yen lower to test authorities’ resolve.
Malaysia’s central bank also rang the warning bell on Tuesday, saying it will intervene to stabilize the ringgit, citing what it called “excessive” recent losses.
