Wall Street slides on emerging market jitters; Fed in focus

New York: US stocks fell on Wednesday, along with markets around the world, on concerns that bold efforts by Turkey and South Africa to stabilize their currencies may not be enough to staunch a cycle of selling in emerging markets.

The benchmark S&P 500 has lost ground during four of the past five sessions, amid fears over slowing growth in China and large capital outflows from developing markets as investors sought safe-haven assets.

South Africa’s central bank raised interest rates for the first time in six years. This followed a dramatic rate hike by Turkey’s central bank, designed to defend its crumbling currency.

But the euphoria that followed Turkey’s move faded, with European indexes falling into negative territory and Wall Street slipping in morning trading.

“Our markets are so linked together that if something pulls a trigger, it’s like a domino effect. We are not exactly sure how one would impact (the decision of) the other, but things happen fast and investors get quickly nervous,” said Joe Saluzzi, co-head of equity trading at Themis Trading in New York.

Investors were cautious ahead of the US Federal Reserve’s impending decision on its monthly bond-buying program, with an announcement due at 2 pm EST.

While the expectation is for the central bank to cut its bond purchases to a monthly $65 billion, market participants were waiting to see if the Fed would also address the subject of the recent rout in emerging market currencies.

The Dow Jones industrial average fell 147.38 points, or 0.93 percent, to 15,781.18, the S&P 500 lost 14.6 points, or 0.81 percent, to 1,777.9 and the Nasdaq Composite dropped 34.185 points, or 0.83 percent, to 4,063.777.

Boeing Inc shares fell 5 percent to $130.27, even as it reported a 26-jump in quarterly profit, lifted by a rise in commercial aircraft deliveries.

Dow Chemical Co shares rose 5.8 percent to $45.56 after raising its dividend 15 percent and expanding its share buyback program to $4.5 billion from $1.5 billion.

The company’s quarterly profit was well ahead of expectations. Yahoo Inc shares plunged 6.5 percent to $35.70 a day after announcing a decline in online ad prices which hurt its revenue for a fourth consecutive quarter.

Alibaba, the Chinese e-commerce giant in which it owns a big stake, saw revenue growth decelerate. Wall Street’s slide was closely linked to the drop in emerging market currencies.

The South African rand sank over 2 percent to 11.24 per dollar and the Turkish lira, which initially rallied more than 3 percent, gave up gains and traded about 1 percent weaker against the greenback.

“I believe that the selloff in emerging market currencies is being exacerbated today by the seeming inability of central banks to halt the decline of their currencies, despite the draconian hikes in overnight interest rates and the massive currency interventions in the last few weeks,” Robbert van Batenburg, director of market strategy at Newedge, wrote in a note to clients.

Reuters