Emerging Markets Soothed By Limited Israel Fallout And Fed 

(Bloomberg) -- A modicum of calm prevailed in emerging markets in early Tuesday trading as investors sought to unpack the implications of rising frictions in the Middle East following the surprise weekend attack on Israel.

Suggestions from Federal Reserve officials Philip Jefferson and Lorie Logan that there may not be a need for fresh interest rate hikes following the surge in US Treasury yields added to the contemplative tone among investors. A rally in those securities overnight on haven demand has also supported sentiment.

The gauge for emerging market stocks rose, while the currency index was led higher by the likes of South Africa's rand and the Philippine peso as of 8:10 a.m. in London. The latest geopolitical risks have sparked concern about an investor exodus from developing-nation assets, already battered by rising bond yields and higher oil prices.

Against that backdrop, emerging markets have so far digested the latest events well, said Carlos Von Hardenberg, co-founder of Mobius Capital Partners, in a note to clients.

“While the conflict in the Middle East adds to global uncertainty, we do not believe that this situation would trigger a deterioration of world trade or EM economies,” he said. “At this point, we have little data which indicates a direct involvement of other countries into the conflict.”

Read more: Top US General Warns Iran to Stay Out of Conflict

Israel's shekel regained its footing after the central bank vowed to support the currency with unprecedented measures to contain the fallout from Hamas's attack on Israel.

The shekel rose 0.8% to 3.9206 per dollar, after slumping 2.7% on Monday.

The Thai baht gained as much as 0.8%, the most in a day since July 18 on a closing basis. It traded at 36.895 per dollar by 8:13 am in London.

In credit, Middle East bonds were among the bottom 20 performers in an index of developing-nation dollar bonds.

Those dropping included credit from Israel, Iraq and Bahrain.

Looking ahead, inflation reports from the Czech Republic and Egypt are due.

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