LONDON, May 22 (Reuters) - Ukraine’s hryvnia sank more than 4 percent against the dollar on Thursday, a day after the country moved to strengthen the official rate, while emerging assets fell as record commodity prices stoked inflation fears.
Emerging equities .MSCIEF took their cue from global markets, falling 0.74 to 1,223.99 by 1035 GMT as they retreated further from their year-highs earlier this week.
Benchmark emerging sovereign debt yields 11EMJ narrowed two basis points to trade at 256 basis points above U.S. Treasuries. Global equities and bonds are retreating after oil rose to a new record above $135 per barrel in the overnight Asian session.
Soaring energy costs are heightening worries over stagflation — rising consumer prices coupled with economic contraction — with investors fearful that central banks would be unable to ease monetary policy to revive economic growth. But strong commodity prices are likely to have a mixed impact on emerging economies.
“Over the coming months, we expect a continuation of the divergence between ‘winners’ and ‘losers’,” said Akber Khan, head of emerging markets equity focus at Deutsche Bank.
“Among ‘winners’, we will see commodity-exporters, countries that are not reliant on tapping capital markets to fund their growth, those with solid fiscal positions and those with limited exposure to the US or European consumer.”
“In EMEA this will be countries such as Russia, the Middle East and to a smaller extent, Poland. Those at risk are on the other side of these trends and include countries such as Turkey and Hungary.”
Resource-rich South Africa saw its stock market .JTOPI rise more than 1 percent, shrugging off jitters over anti-foreign violence in some of the country's townships and an announcement by its main utility provider of a possible resumption of power cuts. [ID:nL22155251]
Local currencies were mixed with the Ukrainian hryvnia leading the day’s losers.
The hryvnia UAH= fell 4.01 percent to trade at 4.74 against the dollar after hitting a high of 4.52 in the previous session.
Ukraine’s central bank, which has been under pressure to revalue the hryvnia from 5.05 versus the greenback after inflation hit 30 percent annually last month, raised on late Wednesday the official rate of the currency to 4.85. A central bank official told Reuters the new hryvnia rate reflected a policy of allowing the currency to fluctuate and said that no currency band would be fixed. [ID:nL22938889]
Investors are monitoring central bank reactions around the world to rising inflation.
The Icelandic crown softened 0.2 percent to 72.80 against the dollar ISK= after the central bank left its key interest rates unchanged, defying expectations it would raise borrowing costs again to shore up a shaky currency. [ID:nL22914750]
Meanwhile, Poland’s zloty EURPLN= slipped 0.33 percent to two-week low against the euro after April inflation data suggested a moderating rate of increase in consumer prices, implying the central bank will likely leave interest rates unchanged next week.
“We continue to see significant inflation risks, despite the somewhat better-than-expected core inflation figures... We think that, after a few months’ pause, the central bank will start hiking rates again in the autumn,” said Goldman Sachs in a research note. (Reporting by Sebastian Tong; editing by David Christian-Edwards)