May 4, 2018 / 9:46 AM / 2 years ago

EMERGING MARKETS-Emerging stocks, FX nurse hefty losses after dollar bites

* Argentine peso, Turkish lira hit record lows in brutal week

* EM borrowing costs blow out to widest in more than a year

* Markets await key U.S. jobs data

By Karin Strohecker

LONDON, May 4 (Reuters) - Emerging markets continued their sell-off on Friday with stocks on track for a third straight week of losses and currencies suffering as Turkey’s lira ended its worst week in nearly a decade by touching a fresh record low.

Roiled by the recent dollar strength and rising U.S. Treasury yields, emerging markets had come under pressure with MSCI’s equity benchmark index falling 0.3 percent to a 4-1/2 month low, on track for a 2.5 percent decline over the week.

Signs of stress were visible across markets as investors prepared for the U.S. jobs data due later in the day. The April report, which will be scoured by analysts to provide clues on a likely U.S. interest rate trajectory, is likely to underscore labour market strength.

The average yield spread of emerging market hard currency bonds over safe-haven U.S. Treasuries blew out by 23 basis points over the week to 331 basis points - its widest in more than a year.

But it was currencies that got a real drumming, with Turkey’s lira and Argentina’s peso finding themselves right in the line of fire.

“There is an overall EM weakness which is coming mostly from the U.S. dollar strengthening in the past 10 days to two weeks, and also U.S. yields have increased,” said Sebastien Barbe, global head of EM research and strategy at Credit Agricole.

“In the short-term, emerging market currencies may continue to depreciate on average,” Barbe said, adding he did expect the weakness to be limited to the weakest links.

The lira, which has been buffeted by a plethora of problems in recent months, is on track for a near-five percent fall over the week - its worst such performance since 2009.

Latest data confirming stubbornly high inflation, large external financing needs, political pressure to lower interest rates and political uncertainty over snap elections to be held in June have weighed heavily on Turkish markets.

Meanwhile the Argentine peso looks poised for a near 8 percent tumble in its worst week since Mauricio Macri devalued the currency after taking office in December 2015.

And Argentina’s central bank ramping up benchmark interest rates by 300 bps - its second such move in less than a week - did nothing to stop the peso from swooning to a record low.

But others chalked up hefty losses too. South Africa’s rand is on track for a 2.5 percent decline in its sixth straight week in the red, with the currency having given up by now more than two-thirds of the gains made since Cyril Ramaphosa took the helm of the ruling ANC in December.

Meanwhile Russia’s rouble, Mexico’s peso and China’s yuan were also all on track for weekly losses.

For GRAPHIC on emerging market FX performance 2018, see For GRAPHIC on MSCI emerging index performance 2018, see

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see) (Reporting by Karin Strohecker Editing by Mark Heinrich)

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