EMERGING MARKETS-Currencies, stocks steady but pressure remains
By Walter Brandimarte and Sujata Rao RIO DE JANEIRO/LONDON, Jan 31 (Reuters) - Emerging markets steadied on Friday after a roller-coaster week, but currencies such as the Russian rouble and the Turkish lira still traded near multi-year lows despite strong central bank support. Emerging market stocks tracked by a benchmark MSCI index ended January with losses of 6.7 percent, similar to those recorded last June, when investors were growing worried about when U.S. policymakers would start cutting back on monetary stimulus. Emerging markets in general suffered bouts of heavy selling with a few periods of respite since late last week, and analysts forecast the selloff has still to run its course before markets stabilize. "We are in a negative feedback loop of weak currencies, higher interest rates, weak growth and capital outflows," said David Hauner, head of EEMEA fixed income strategy and economics at Bank of America Merrill Lynch. "This feedback loop needs to play out and that means at the end of the day emerging market assets need to become much cheaper. Only then will people come back to buy." Political tensions have grown, with India accusing the United States of not being mindful of the impact of its policies on the rest of the world and a top Federal Reserve official saying that countries that used cheap money to consume, such as Brazil, will have a hard time as the Fed cuts back on stimulus. Meanwhile, the International Monetary Fund urged central banks to remain vigilant over liquidity conditions. Still, analysts said tighter global liquidity resulting from the Fed's stimulus withdrawal only exacerbates emerging markets' own problems, which include unsustainable current account deficits, rising political risks and a possible economic slowdown in China. "What's driving this is the fear of a Chinese slowdown and what I want to see is some kind of policy action from the People's Bank of China," said Lars Christensen, chief emerging markets analyst at Danske Bank. SPILLOVER INTO CENTRAL EUROPE In a sign that the turmoil was reverberating in central Europe, Poland delayed publication of its monthly debt supply plan until next week due to market turbulence and an overhaul of its pension scheme. On Thursday, Hungary was forced to cut a T-bill auction because of a 67 basis-point jump in yields. Hungary's central bank was the latest to wade in with assurances that it would act to soothe markets if needed, adding to verbal intervention from India and Russia, as well as big rate rises in Turkey and South Africa. The Hungarian forint fell as much as 1.6 percent versus the euro to a two-year low, before trimming losses to trade 0.8 percent weaker. The country's bond yields jumped 20 basis points across the curve. "Fears are growing that, if the central bank cannot stop the forint's fall in any other way, this will lead to an interest rate hike in the end," a bond trader in Budapest said. In neighboring Poland, 10-year bond yields rose 10 basis points to a 4-1/2 month high after the government delayed its debt supply plan and the zloty lost 1 percent. The spotlight remained on the rouble. A rally that started late on Thursday proved short-lived, and the Russian currency traded 0.7 percent lower. Analysts said the central bank's plans for "unlimited interventions" should the rouble stray outside a target band had squeezed out short rouble positions on Thursday, but the broad trend for flight was very much intact. The Turkish lira and the South African rand both fell about 1 percent but erased losses later, rising 0.2 and 0.7 percent, respectively. South African domestic bond yields hit the highest since mid-2011 as markets priced in more interest rate rises in coming months. BRAZIL MISSES BUDGET TARGET In Latin America, the Chilean peso slid 1.5 percent while the Brazilian real and the Mexican peso erased early losses. The real closed little changed on the day while the peso gained 0.3 percent. Both closed January with losses of little more than 2 percent. The real remained under pressure even as the central bank offered as much as $2.3 billion through repurchase agreements to roll over expiring dollar lines and maintain liquidity in the currency market. Underscoring investor concern about Brazil's deteriorating economic fundamentals, central bank data showed that the country posted its weakest fiscal performance in more than a decade in 2013, falling far short of its primary surplus goal for the year. Despite the recent round of monetary tightening in some emerging market countries, Mexico's central bank held its benchmark interest rate unchanged at a record low 3.5 percent. Colombian policymakers also held the country's benchmark lending rate steady at 3.25 percent for a 10th month. Key Latin American stock indexes and currencies at 1930 GMT Stock indexes daily % YTD % Latest change change MSCI LatAm 2,901.11 0.47 -9.79 Brazil Bovespa 47,638.99 0.84 -7.51 Mexico IPC 40,768.55 -0.58 -4.58 Chile IPSA 3,410.80 0.57 -7.80 Chile IGPA 17,007.14 0.41 -6.69 Argentina MerVal 6,009.41 2.58 11.47 Colombia IGBC 11,948.75 -0.09 -8.59 Peru IGRA 15,498.51 -0.33 -1.62 Venezuela IBC 2,827.91 1.05 3.34 Currencies daily % YTD % Latest change change Brazil real 2.4114 0.11 -2.26 Mexico peso 13.3135 0.41 -2.13 Chile peso 555.7000 -1.55 -5.33 Colombia peso 2015.2000 -0.19 -4.13 Peru sol 2.8220 -0.18 -1.03 Argentina peso 8.0050 0.12 -18.89 Argentina peso 12.5500 0.80 -20.32
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