July 9, 2020 / 8:21 AM / a month ago

EMERGING MARKETS-Hopes for stimulus-driven recovery buoy markets; rouble up for third day

* S.African rand at one month high

* Rally in markets not driven by fundamentals - analyst

* Russian shares sit out EM stocks rally; Lukoil weighs

* Inflation risks in central European economies underestimated- CS

By Susan Mathew

July 9 (Reuters) - Russia’s rouble firmed for a third day running on Thursday and most other emerging market currencies attempted to gain against a weaker dollar as investors focussed on the prospect of a gradual, stimulus-induced pick up in the global economy.

MSCI’s index of developing market currencies scaled a one-month high with a rally in China’s yuan setting the tone as investors poured into Chinese stocks, egged on by policy support and ample liquidity.

“Fundamentals and valuations appear to be of limited influence on investor’s decision making,” said Hussein Sayed, Chief Market Strategist at FXTM.

“The fear of missing out, monetary and fiscal policy actions, low yields, lower interest rates for longer, are some of the factors that have led to this structural change in markets.”

The number of cases of the novel coronavirus continued to surge in many countries with the global count breaching 12 million on Wednesday.

Emerging market stocks and currencies have appreciated sharply since March lows, but worries have risen that a tightening of containment measures may send the global economy into a deeper recession and trigger a fresh sell-off.

The rouble rose 0.6%, while South Africa’s rand touched its highest in a month. The Turkish lira traded flat.

A Reuters poll showed that Turkey’s factory production is seen slumping more than 22% in May, while current account is expected to record a deficit of $4 billion in the same month, as the coronavirus pandemic reduced business activity, exports and tourism. Both data sets are due next week.

While most EM stock markets rose after Wall Street’s surge overnight, Russia’s main index slipped 0.6% as energy major Lukoil slid 5.8%, tracking oil prices lower.

Currencies of central and eastern Europe made minor moves against a stronger euro. Hungary’s forint looked to firm after two days of losses. Preliminary data showed Hungary posted a foreign trade surplus of 155 million euros in May, better than analysts’ forecast for a deficit of 281 million euros.

Credit Suisse analysts warn that if the pick-up in Hungary’s inflation as seen on Wednesday is any indication, inflation risks are underestimated in central European economies.

“The data suggest that consumer prices remained extremely sticky recently, especially taking into account the most recent period when consumer demand is extremely weak.”

“When economy is recovering and negative output gap is closing, inflation can accelerate.”

For GRAPHIC on emerging market FX performance 2020, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance 2020, see tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; Editing by Shailesh Kuber)

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