LONDON, July 9 Emerging stocks rebounded on
Tuesday, tracking U.S. shares higher, and most currencies also
recovered some ground, with many, such as the Turkish lira,
lifted by central bank buying.
Broad support came from a good start to the U.S. earnings
season following last week's strong jobs data.
Investors have been drawn away from higher-yielding risky
assets for weeks because signs of recovery in the United States
have raised expectations that the Federal Reserve will ease off
on its bond-buying programme, lifting Treasury yields.
However, on Tuesday, investors squared positions before
Wednesday's release of minutes from the latest Fed meeting -
expected to provide more clues on the bank's tapering plans.
"Uniformity continues to rise, showing that there is no
story but the dollar move across emerging market currencies,"
Deutsche Bank analysts said in a note.
The MSCI emerging stocks index rose nearly one
percent, after hitting 11-day lows in the previous session, with
Russian shares rallying amid steady oil prices. Chinese
shares were flat to slightly higher.
China's annual consumer inflation accelerated more than
expected in June but factory-gate deflation persisted for a 16th
month, data on Tuesday showed.
The Egyptian pound held steady above recent record
lows after Egypt's interim head of state set a speedy timetable
for elections following the army ousting of President Mohamed
Mursi last week.
Egyptian stocks rose more than 2 percent after
dropping 3.5 percent on Monday.
Emerging sovereign debt spreads tightened 1 basis point
to 340 bps over U.S. Treasuries, and have narrowed about
50 bps in the past two weeks.
Most emerging European currencies were slightly stronger,
with the Czech crown rising after above-expected June inflation
reduced expectations that the central bank might intervene to
weaken the currency.
The Indian rupee rallied from Monday's record low after
regulators restricted speculative trading in currency
derivatives, while the Turkish lira hit six-day highs,
also up from Monday's record lows after the central bank sold
over $2 billion.
Many emerging markets have moved into tightening mode to
prevent investor flight to the attractions of the rising dollar
and U.S. Treasury yields.
"The premium that the market is going to put on emerging
markets of strong versus weak external finances is going to
rise," said Brian Coulton, emerging markets strategist at Legal
"Turkey, South Africa and to some extent Indonesia look
Brazil and Indonesia are expected to raise rates this week.