EMERGING MARKETS – Equities, currencies rise on the accommodating Fed, gains on commodities
Emerging market stocks and currencies rose on Tuesday after comments from the Federal Reserve downplayed the possibility of an early policy tightening, while a rise in commodity prices saw the South African rand lead his earnings.
The MSCI Emerging Equity Index jumped 1.5% and was set for its best day in more than two weeks, as Asian stock markets rebounded from recent losses.
The emerging currency index rose 0.3% after Dallas Federal Reserve Chairman Robert Kaplan reiterated his view that he does not expect an interest rate hike before next year, resulting in lower dollar and treasury yields, while benefiting risk-oriented assets.
“High inflation or inflation expectations and an unchanged Fed approach is a constellation unfavorable for the USD,” wrote You-Na Park-Heger, FX and EM analyst at Commerzbank in a note.
“A growing number of central banks appear to be waking up from their pandemic paralysis and responding to improving economic conditions and rising inflation.”
Gains in gold, oil and base metals prices pushed the South African rand up 0.6%, the most in all currencies in Europe, the Middle East and Africa (EMEA ).
The currency is among the best performing emerging units this year due to its relatively high yield.
The Hungarian forint rose 0.3% to a nearly nine-month high against the euro, extending Monday’s big gains after the country’s central bank signaled a possible rate hike in June to tame inflation.
The data also showed that the Hungarian economy contracted less than expected in the first quarter.
Hungary’s hawk signals, after nearly a year of loose monetary policy, have pushed inflation expectations higher around the world, with several emerging banks either starting to start to tighten or reporting that they are will.
The prospect of tightening, coupled with a broadly supportive Fed, has seen emerging bond spreads stabilize at near pre-pandemic levels, indicating better prospects for emerging debt.
The Russian ruble was held steady as gains in oil prices were offset by preliminary data showing that gross domestic product fell 1% in the first quarter.
But Russian stocks rebounded 1.3% to near record highs, supported by strong first quarter results from Gazprom Neft, the oil arm of Russian gas giant Gazprom. Both stocks rose about 1%.
Source: Reuters (Report by Ambar Warrick in Bengaluru; edited by Barbara Lewis)