March 4 (Reuters) – Emerging market stocks fell on Thursday, led by Chinese blue-chips after a day of strong gains, while currencies looked to a speech by U.S. Federal Reserve Chairman Jerome Powell later in the day for comments on recent bond market gyrations.
Following a weak close on Wall Street overnight, Asian stocks fell almost 2%, with Chinese blue-chips sinking over 3% to touch their lowest in two months.
Main indexes in emerging Europe , Middle East and Africa fell between 0.1% and 0.8%, with Russian stocks falling for the first time in four sessions.
Spooking investors, yields on U.S. 10-year debt ticked higher again, after an overnight rise. Economic stimulus plans and the roll-out of COVID-19 vaccines have ignited bond market fears of a resurgence in inflation, roiling assets across the globe.
Investors have also greeted with some apprehension comments by U.S. President Joe Biden that the U.S. relationship with China would be “competitive when it should be, collaborative where it can be, and adversarial where it must be”.
Ahead of a policy-making committee meeting later in the month, Fed Chair Powell was due to speak at a Wall Street Journal conference at 12:05 p.m. EST (1705 GMT), and markets were waiting to see whether he addresses the risk of a rapid rise in long-term borrowing costs.
The dollar ticked slightly higher, cutting gains in some EM currencies. Turkey’s lira erased session gains of up to 1.2% to trade 0.2% lower, while South Africa’s rand was flat.
Sri Lanka’s rupee was flat after its central bank left the key policy rate unchanged, pledging low rates until signs of a sustained recovery emerge.
Oil currencies such as Russia’s rouble and the Mexican peso firmed 0.5% and 0.3% respectively as crude prices perked up at the possibility that OPEC+ producers might decide against increasing output at a key meeting later in the day.
“(The Russian rouble’s real effective exchange rate (REER) undervaluation is very material,” said FX commodity strategists at ING, referring to the weighted average of a country’s currency in relation to an index or basket of other major currencies determined by trade balance.
“Capital account volatility (related to actual or expected sanctions) are set to retain a stronger influence on the rouble… but an extension of the oil rally in the second half of the year should contribute to limit its downside risk,” they said, adding that their year-end forecast for the currency is 73.00 per dollar.
The rouble was last trading at 73.8.
For GRAPHIC on emerging market FX performance in 2021, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see tmsnrt.rs/2OusNdX
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