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EMERGING MARKETS-Emerging markets bullish pre-Fed; Poland shrugs off EU threat
July 26, 2017 / 9:10 AM / in 4 months

EMERGING MARKETS-Emerging markets bullish pre-Fed; Poland shrugs off EU threat

LONDON, July 26 (Reuters) - Emerging markets were mostly firmer on Wednesday after a shaky start in Asia caused by a slight rise in the dollar and U.S. bond yields before the Federal Reserve meeting.

It may reveal when the United States will start paring its bond holdings and next raise rates.

Poland’s zloty inched further off recent three-month lows and Polish stocks rose 0.6 percent as investors’ bullish view on emerging markets before the Fed meeting outweighed the rise in local political risk.

With the Fed seen standing pat on rates later in the day, emerging markets in general showed little sign of nerves. The Turkish lira and South African rand rose slightly versus the dollar and MSCI’s emerging equity benchmark was flat on the day close to 27-month highs.

The rouble rose 0.2 percent lifted by firmer oil.

In Poland, the zloty firmed and Polish stocks rose 0.5 percent to one-week highs before a European Commission meeting that will vote on a censure motion on Poland which is pushing on with moves allowing the government to fire judges.

This may ultimately lead to the triggering of so-called Article 7 stripping Warsaw of EU voting rights .

While the confrontation has pressured Polish markets in recent days, markets appear to be betting Article 7 is unlikely while investors are also attracted by Poland’s robust economy. Deputy Prime Minister Mateusz Morawiecki said the 2017 budget deficit could be $2.7 billion lower than expected.

“(The EU) would have to be incredibly aggressive with their language to have an impact as the EU is more bark than bite,” said Koon Chow, a strategist at UBP in London.

“The European Commission’s natural tendency is not to make big threats,” he said.

Polish debt insurance costs were unchanged, with five-year credit default swaps at 62 basis points, IHS Markit said.

Meanwhile, investors were sanguine about the Fed’s immediate impact on emerging markets, with Morgan Stanley analysts for instance holding on their bullish view.

“We think EM will be fine and we recommend buying into weakness that might emerge,” Morgan Stanley said, adding that Fed talk of weak inflation would further boost emerging currencies that are already supported by a better growth, inflation and current account picture at home.

That view should be confirmed later in the day by Brazil’s central bank which is expected to cut interest rates by 100 basis points to 9.25 percent - the first time in four years that rates will be under 10 percent.

Brazilian stocks closed Tuesday at two-month highs

For GRAPHIC on emerging market FX performance 2017, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, see tmsnrt.rs/2dZbdP5

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see)

Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 1060.73 -0.96 -0.09 +23.02

Czech Rep 1014.04 -1.09 -0.11 +10.03

Poland 2351.30 +9.94 +0.42 +20.71

Hungary 35284.41 -1.73 +0.00 +10.25

Romania 8337.09 +8.36 +0.10 +17.67

Greece 839.90 -3.15 -0.37 +30.49

Russia 1012.18 +2.12 +0.21 -12.16

South Africa 48394.76 +171.47 +0.36 +10.23

Turkey 07438.20 +397.53 +0.37 +37.50

China 3247.58 +3.89 +0.12 +4.64

India 32374.80 +146.53 +0.45 +21.59

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2017

Czech Rep 26.01 26.03 +0.08 +3.83

Poland 4.26 4.26 +0.19 +3.48

Hungary 305.41 305.09 -0.10 +1.12

Romania 4.56 4.56 +0.07 -0.52

Serbia 120.63 120.63 +0.00 +2.25

Russia 59.98 59.85 -0.22 +2.14

Kazakhstan 326.85 327.06 +0.06 +2.08

Ukraine 25.89 25.83 -0.23 +4.29

South Africa 13.04 13.08 +0.31 +5.33

Kenya 103.85 103.80 -0.05 -1.43

Israel 3.58 3.57 -0.11 +7.65

Turkey 3.56 3.57 +0.25 -1.01

China 6.75 6.75 -0.08 +2.79

India 64.39 64.38 -0.02 +5.52

Brazil 3.17 3.17 -0.02 +2.54

Mexico 17.77 17.78 +0.05 +16.59

Debt Index Strip Spd Chg %Rtn Index

Sov‘gn Debt EMBIG 323 -1 .05 7 88.40 1

All data taken from Reuters at 08:28 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (Reporting by Sujata Rao; additional reporting by Claire Milhench)

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