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EMERGING MARKETS-China data, pause in US yields lift emerging markets
December 13, 2016 / 10:28 AM / 9 months ago

EMERGING MARKETS-China data, pause in US yields lift emerging markets

LONDON, Dec 13 (Reuters) - A pause in the rally in U.S. bond yields ahead of December’s Federal Reserve meeting and stronger-than-expected Chinese data lifted emerging market equities on Tuesday, although Russian assets eased off the highs hit earlier this week.

U.S. Treasury yields hit a two-year high on Monday, spiking on expectations that president-elect Donald Trump will pursue expansionary fiscal policies that will drive growth and inflation.

This steepening of the U.S. yield curve has created headwinds for emerging market assets, but selloff has paused before the Fed starts its two-day meeting that will almost certainly raise interest rates by 0.25 percent -- its first increase in 2016

This allowed the benchmark emerging stocks index to rise 0.3 percent, with strong gains in emerging Europe and selective Asian markets.

Some of the equity outperformers included Poland, up around 1 percent, Turkey, up 0.7 percent to one-month highs and South Korea, up 0.4 percent to one-and-half-month highs.

“Emerging market stocks are taking some comfort in the fact that the selloff in U.S. bond markets that caused yields to rise quite significantly - normally a negative for emerging markets - is showing signs of stabilisation ahead of the Fed meeting,” said Jakob Christensen, head of emerging markets research at Danske Bank.

But Christensen said markets wanted to see what the Fed makes of Trump’s planned stimulus and higher commodity prices, especially after oil’s surge to 18-month highs following OPEC’s deal with some other producers to cut output.

“It’s very important to see what the Fed communicates, and whether they are more hawkish in that light,” he said, noting that the market had priced in two hikes next year.

The yield premium paid by emerging sovereign dollar debt over U.S. Treasuries on the JPMorgan EMBI Global Diversified index was one basis point wider at 346 basis points (bps), but close to one-month lows of 343 bps hit on Friday.

Investor sentiment towards emerging markets was also boosted by better-than-expected Chinese factory output and retail sales data for November.

Chinese mainland shares ended up a touch, struggling off a one-month low hit on Monday. The yuan also firmed against the dollar after the central bank set the midpoint rate firmer than the previous fix.

But other currencies failed to make headway with the Russian rouble slipping slightly percent against the dollar after leaping 2.4 percent on Monday to its strongest in over a year.

The rouble has been supported by the oil rebound, which has also helped Moscow shares to record highs. Russian stocks were down 0.4 percent on Monday.

The rouble has now overtaken the Brazilian real as the best emerging currency performer of 2016 and is widely expected to appreciate further. tmsnrt.rs/2e7eoml

“The rouble remains an attractive currency...due to the prospect of relatively stable oil prices, a high interest rate differential, improvement in economic activity and stability in domestic politics at a time when Europe faces major political risk events in 2017,” Rabobank told clients.

The Kazakhstan tenge was also down 0.4 percent and the South African rand slipped 0.2 percent.

The Romanian leu weakened 0.3 percent against the euro but Bucharest stocks rose 0.4 percent, following a victory for the leftist Social Democrats in a parliamentary election on Sunday.

The Azerbaijan manat was 0.1 pct weaker, not far off record lows, after the central bank unveiled plans on Monday to fully float the currency in 2017. It currently operates a managed float regime.

For GRAPHIC on MSCI emerging index performance 2016, see tmsnrt.rs/2dZbdP5

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

on year

Morgan Stanley Emrg Mkt Indx 875.10 +2.86 +0.33 +10.19

Czech Rep 909.01 +3.58 +0.40 -4.95

Poland 1906.62 +24.04 +1.28 +2.55

Hungary 30768.12 +154.97 +0.51 +28.63

Romania 6981.91 +27.82 +0.40 -0.32

Greece 636.64 -3.74 -0.58 +0.84

Russia 1145.73 -2.86 -0.25 +51.34

South Africa 43950.21 +57.70 +0.13 -4.03

Turkey 76857.43 +617.80 +0.81 +7.15

China 3155.36 +2.39 +0.08 -10.84

India 26700.57 +185.33 +0.70 +2.23

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2016

Czech Rep 27.01 27.02 +0.03 -0.04

Poland 4.45 4.45 -0.06 -4.33

Hungary 314.08 314.23 +0.05 +0.18

Romania 4.50 4.49 -0.24 +0.32

Serbia 123.28 123.42 +0.11 -1.47

Russia 61.02 60.97 -0.08 +19.56

Kazakhstan 331.30 330.10 -0.36 +2.78

Ukraine 26.08 26.05 -0.12 -8.16

South Africa 13.61 13.60 -0.07 +13.60

Kenya 101.90 101.90 +0.00 +0.29

Israel 3.80 3.81 +0.20 +2.24

Turkey 3.47 3.47 +0.01 -15.88

China 6.90 6.90 +0.04 -5.94

India 67.49 67.42 -0.10 -1.91

Brazil 3.34 3.34 +0.00 +18.61

Mexico 20.23 20.20 -0.14 -15.13

Debt Index Strip Spd Chg %Rtn Index

Sov‘gn Debt EMBIG 372 1 .03 7 32.45 1

Editing by Keith Weir

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