LONDON, March 8 (Reuters) - A rise in U.S. Treasury yields weighed on emerging assets on Wednesday, with the Turkish lira shrugging off central bank pledges for more monetary tightening to slump one percent against the dollar.
Investors in most markets have retreated to the sidelines before Friday’s U.S. jobs data which may offer clues as to the pace of monetary tightening by the Federal Reserve, though a rate rise next week has been more or less priced in. However 10-year Treasury yields inched to six-week highs.
Emerging equities seesawed around flat, though Hong Kong-listed Chinese stocks rose 0.3 percent. Chinese local markets shrugged off data showing the country’s first trade deficit in two years.
Turkey is one of the markets that will likely be worst hit in event of a more hawkish Fed, given its current account deficit and low domestic policy credibility. South Africa too could suffer, especially after data showing a surprise growth contraction towards end-2016, highlighted its sluggish economy.
The lira has slipped almost 5 percent in the past 10 days as the likelihood rose of a Fed move this month and did not receive any support from governor Murat Cetinkaya who signalled more monetary tightening was on the way if needed.
Simon Quijano-Evans, EM strategist at Legal & General said that while an upswing in U.S. yields was negative for the emerging markets asset class, “you are bound to get bigger moves on higher-beta EM stories such as Turkey and South Africa.”
While Cetinkaya has lifted the central bank funding rate to a near five-year high over 10.6 percent, he failed to mention plans to shift to more orthodox monetary policy.
Quijano-Evans noted, however, the central bank had managed to tighten policy in recent weeks without verbal interference from the government and that has helped calm lira markets.
“That should show (Turkey‘s) leadership an independent central bank is the most important policy tool they can have,” he added.
The South African rand fell 0.5 percent to the dollar , deepening its losses as data showed business confidence fell in February.
The Polish zloty slipped 0.2 percent before a central bank meeting that will likely hold rates unchanged.
The Czech crown eased in forward markets, extending falls from Tuesday when data showed authorities had bought a record 14.4 billion euros in January, tripling its reserves since 2013.
The exchange rate implied in six-month forwards contracts eased to a one-month low at 26.865 per euro.
SEB predicted more speculative pressure on the crown, with this week’s inflation data likely surprising to the upside. The Czech National Bank has pledged not to end its policy of capping the currency’s strength before the second quarter.
“We expect the central bank to remove the floor after the French election to avoid potential volatility...Euro/crown will stabilize around 25.5 (after cap exit),” they said.
In bond news, emerging borrowers raced to raise money before the Fed move, with Kuwait on a roadshow for its long-awaited issue and Russian sub-sovereign Gazprom hoping to follow peers such as Evraz and Polyus to tap markets.
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 936.18 -0.32 -0.03 +8.57
Czech Rep 973.54 +1.84 +0.19 +5.63
Poland 2213.97 +12.99 +0.59 +13.66
Hungary 32621.27 +179.07 +0.55 +1.93
Romania 7914.03 +8.46 +0.11 +11.70
Greece 652.27 +9.11 +1.42 +1.34
Russia 1097.44 -13.02 -1.17 -4.76
South Africa 44333.80 -6.53 -0.01 +0.98
Turkey 90130.06 -683.55 -0.75 +15.35
China 3241.18 -1.22 -0.04 +4.43
India 28914.39 -85.17 -0.29 +8.59
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.00 27.02 +0.07 +0.02
Poland 4.31 4.30 -0.10 +2.25
Hungary 309.96 309.91 -0.02 -0.37
Romania 4.54 4.54 -0.09 -0.18
Serbia 123.70 123.67 -0.02 -0.28
Russia 58.37 58.16 -0.36 +4.95
Kazakhstan 315.85 315.17 -0.22 +5.64
Ukraine 26.95 26.95 -0.00 +0.19
South Africa 13.01 12.97 -0.31 +5.54
Kenya 102.40 102.50 +0.10 -0.03
Israel 3.68 3.67 -0.25 +4.60
Turkey 3.71 3.68 -0.97 -5.06
China 6.91 6.90 -0.11 +0.51
India 66.72 66.62 -0.16 +1.84
Brazil 3.12 3.12 -0.02 +4.29
Mexico 19.58 19.49 -0.46 +5.80
Debt Index Strip Spd Chg %Rtn Index
Sov‘gn Debt EMBIG 320 -1 .08 7 63.99 1
All data taken from Reuters at 09:58 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (Editing by Toby Chopra)