EMERGING MARKETS-Emerging stocks off 13-month high
Emerging stocks edged off 13-month highs on Thursday after a four-day rally, despite some supportive Chinese trade data, while forward markets priced in increased chances the Czech crown would rise past its exchange rate cap in coming months.
Investors are waiting to see whether the European Central Bank signals any additional future stimulus at its meeting on Thursday before making further moves on a market that has rallied hard as bets on a September U.S. rate rise have ebbed.
“The ECB isn’t going to give you much joy this week, but it remains a dovish central bank. For now, most investors are in the mindset of buying the dip, not selling the rally,” said Bhanu Baweja, head of emerging markets strategy at UBS.
MSCI’s emerging equity index was flat after rallying almost 5 percent since the start of September, while currencies inched off multi-week highs against the dollar. Sentiment was supported, however, by Chinese trade data showing imports rising for the first time in two years, suggesting a pickup in domestic demand.
The data lifted Chinese shares listed in Hong Kong though local stocks slipped as policy easing expectations faded and exports stayed weak.
“Exports are improving at the margin, but in the broader context this is still a very weak export recovery, although imports are starting to pick up,” Baweja added.
On currency markets, the South African rand was flat after strong gains this week and bond yields touched new 2-1/2-week highs after Finance Minister Pravin Gordhan warned of potential damage to the economy from political conflicts within the ruling party.
The rand has rallied 6 percent this month, buoyed by fading U.S. rate rise bets and data showing better-than-expected 3.3 percent growth in the second quarter.
In central Europe, the Czech crown strengthened further in forward markets, with six- to 12-month euro/Czech forwards all pointing to the crown breaking above the Czech central bank’s 27 per euro exchange rate cap.
Such expectations were encouraged by two policymakers who said they favoured an abrupt exit from the regime.
ING Bank advises positioning for a crown jump versus the euro, calling it “the exchange rate trade of 2017”.
“We recommend shorting euro/crown via 12-month forward, looking for the (central bank) to exit the floor in first quarter of 2017. From the fundamental prospective, there is little need to keep the monetary policy expansionary via the floor,” the bank told clients.
The neighbouring Polish zloty held at two-week highs versus the euro after the central bank ruled out near-term interest rate cuts.
While Polish yields pulled off two-week lows, Hungarian yields fell 3-6 basis points across the curve towards record lows after data showed August inflation at minus 0.1 percent, putting annual inflation well below central bank targets.
The Turkish lira retreated from three-week highs, as data showed a bigger-than-expected 4.9 percent annual slump in industrial production.
For GRAPHIC on emerging market FX performance 2016, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2016, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2016, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2016, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )
Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 927.49 +1.45 +0.16 +16.79
Czech Rep 886.93 +5.52 +0.63 -7.26
Poland 1805.30 -4.72 -0.26 -2.90
Hungary 28689.83 +46.99 +0.16 +19.94
Romania 7081.79 -4.25 -0.06 +1.11
Greece 572.71 -2.35 -0.41 -9.29
Russia 1009.69 +3.92 +0.39 +33.37
South Africa 46555.06 -222.03 -0.47 +1.65
Turkey 78012.29 +369.10 +0.48 +8.76
China 3096.60 +4.67 +0.15 -12.51
India 28974.73 +48.37 +0.17 +10.94
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.00 27.01 +0.01 -0.02
Poland 4.31 4.32 +0.23 -1.17
Hungary 308.44 308.15 -0.09 +2.01
Romania 4.45 4.45 -0.02 +1.60
Serbia 123.22 123.24 +0.02 -1.42
Russia 63.90 64.14 +0.37 +14.16
Kazakhstan 337.16 337.12 -0.01 +0.99
Ukraine 26.60 26.68 +0.30 -9.95
South Africa 13.94 14.01 +0.50 +10.91
Kenya 101.20 101.20 +0.00 +0.99
Israel 3.75 3.75 +0.13 +3.67
Turkey 2.94 2.94 +0.01 -0.62
China 6.66 6.66 -0.05 -2.57
India 66.41 66.47 +0.09 -0.32
Brazil 3.19 3.19 +0.00 +24.06
Mexico 18.33 18.38 +0.28 -6.31
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 353 -1 .03 7 75.41 1
All data taken from Reuters at 08:56 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.