LONDON, Oct 25 (Reuters) - Emerging equities rose on Wednesday with some Asian markets hitting record highs, but gains in currencies were capped by a strong dollar and higher U.S. yields following reports that a policy hawk could be the next Fed chair.
Emerging markets were partly tracking gains on Wall Street, where the Dow Jones scaled a record closing high, helped by strong company earnings results and manufacturing sector data.
But emerging currencies struggled to make much headway in the face of a stronger dollar, which firmed 0.2 percent against a basket of currencies.
U.S. Treasury yields also held at around five-month highs following reports that Republican senators are leaning towards John Taylor as the next Federal Reserve chair. The Stanford University economist is seen as someone who may put the Fed on a path of faster interest rate increases.
“We’re being wagged by the U.S. dog – it’s a mirror image of the U.S. market where equities are higher but expectations of an appropriately hawkish new Fed governor have pushed U.S. rates higher,” said Koon Chow, an emerging markets macro and FX strategist at UBP.
“Not only is the global economy in good shape, but the U.S. economy is catching a second wind. That’s the basis off which we get positive contagion to emerging markets,” he added.
MSCI’s benchmark emerging stocks index rose 0.35 percent after two days of losses, with South Korean, Indonesian and Indian bourses hitting all-time highs.
The latter was helped by a surge in banking shares such as State Bank of India, Punjab National Bank and Bank of Baroda after the cabinet approved a $32.4 billion bank recapitalisation plan.
Chinese mainland shares rose 0.5 percent to fresh 26-month highs, underpinned by tech firm profits and as the Communist Party unveiled a new leadership line up.
The gains extended into European trading, with Russian shares up 0.3 percent, supported by higher oil prices , whilst Turkish stocks continued to recover after Monday’s sharp sell off.
Turkish bank stocks rebounded over 1 percent and the lira firmed 0.4 percent after touching a two-week low on Tuesday.
Turkish assets have had a choppy week following a report that some Turkish lenders could face substantial U.S. fines, which was quickly rebutted by the Turkish banking regulator.
Chow said uncertainty stemming from the Kurdish independence referendum in Iraq had also weighed on the lira in recent weeks, but the Kurdish authorities are now striking a more conciliatory tone, offering to put the independence drive on hold.
Other currencies delivered a lacklustre performance, with China’s yuan dipping 0.14 percent and South Africa’s rand flat ahead of Finance Minister Malusi Gigaba’s closely-eyed mid-term budget policy statement.
“Current fiscal deficit targets will likely be missed, so additional measures may be required to restore a robust fiscal consolidation path,” analysts at Standard Chartered said in a note, adding that they did not expect South Africa to be downgraded on Nov. 24, when S&P and Moody’s have reviews scheduled.
The Hungarian forint weakened 0.2 percent, trading around a two-week low against the euro following the central bank’s comments on Tuesday it stood ready to ease policy further.
In contrast the Czech crown was just off a four-year high hit on Tuesday after hawkish comments from a central bank official.
Brazil’s central bank will meet later today, with expectations that it will cut rates by 75 basis points (bps) to 7.5 percent after 4 consecutive 100 bps cuts.
The lower house of Brazil's Congress is also set to vote on whether to put President Michel Temer on trial for corruption charges. 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
Morgan Stanley Emrg Mkt Indx 1117.30 +3.98 +0.36 +29.58
Czech Rep 1058.76 +7.30 +0.69 +14.88
Poland 2460.42 +11.97 +0.49 +26.31
Hungary 39548.89 +137.53 +0.35 +23.58
Romania 7877.13 -13.77 -0.17 +11.18
Greece 734.41 -2.78 -0.38 +14.10
Russia 1129.48 +2.45 +0.22 -1.98
South Africa 51613.53 +16.04 +0.03 +17.57
Turkey 07682.57 +476.26 +0.44 +37.81
China 3398.30 +10.06 +0.30 +9.49
India 33041.85 +434.51 +1.33 +24.09
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 25.58 25.60 +0.08 +5.57
Poland 4.24 4.24 +0.15 +3.90
Hungary 310.41 309.92 -0.16 -0.51
Romania 4.60 4.60 +0.02 -1.32
Serbia 119.40 119.44 +0.03 +3.31
Russia 57.58 57.63 +0.08 +6.39
Kazakhstan 333.50 333.97 +0.14 +0.04
Ukraine 26.68 26.68 +0.00 +1.20
South Africa 13.73 13.73 +0.01 +0.03
Kenya 103.80 103.70 -0.10 -1.38
Israel 3.51 3.50 -0.10 +9.80
Turkey 3.74 3.74 +0.14 -5.58
China 6.64 6.63 -0.09 +4.57
India 65.12 65.08 -0.05 +4.35
Brazil 3.24 3.24 -0.02 +0.29
Mexico 19.19 19.23 +0.19 +7.95
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 301 -2 .01 8 03.84 1
Reporting by Claire Milhench