LONDON, Aug 21 (Reuters) - Emerging stocks rose to one-week highs on Tuesday after U.S. President Donald Trump criticised the Federal Reserve for raising interest rates, clobbering the dollar and U.S. Treasury yields, while the lira and rouble continued to fall.
MSCI’s benchmark emerging equities index rose 1 percent and was set for a third day of gains after Trump said he was “not thrilled” with the Federal Reserve for raising rates under chairman Jerome Powell.
The comments caused the dollar index to retreat 0.35 percent to a near two-week low, while U.S. 10-year Treasury yields fell towards a six-week low.
That helped emerging stocks and some currencies make gains, although the Turkish lira and Russian rouble remained under pressure as investors eyed threats stemming from their deteriorating relations with the United States.
Chinese mainland shares jumped 1.8 percent, South Korea 1 percent and Indonesia 0.9 percent, while in Europe, Turkish stocks rose 1.6 percent and Polish shares 0.8 percent.
The biggest currency gainers included South Africa’s rand , up 0.9 percent, while China’s yuan firmed 0.2 percent to a near two-week high despite Trump’s comments that China was manipulating its currency to offset U.S. tariffs.
New U.S. tariffs on $16 billion of Chinese goods take effect at 0401 GMT on Thursday, along with retaliatory tariffs from Beijing on an equal amount of U.S. goods.
The impact of Trump’s comments on U.S. monetary policy outweighed him saying that he was not anticipating much from this week’s trade talks between the United States and China. Investors are hoping that the discussions will go some way towards resolving the damaging dispute.
The lira weakened around 0.6 percent after Trump ruled out agreeing to any demands from Turkey to gain the release of the detained American pastor Andrew Brunson.
“There’s a threat the U.S. will impose tighter sanctions in retaliation for Brunson and there’s little sign either government is trying to mend relations,” said William Jackson, senior emerging economist at Capital Economics.
“Both seem to be standing their ground, and given Turkey’s dependence on capital inflows to fund the current account deficit, it is very vulnerable to any shocks that might tighten external financing conditions.”
Russia’s rouble also dipped 0.4 percent as investors eyed the growing sanctions risk. Microsoft said on Monday that it had thwarted hackers associated with the Russian government who were trying to target the websites of two right-wing U.S. think-tanks.
Britain will also call on the European Union today to increase sanctions against Russia, as new U.S. sanctions in relation to the poisoning of a former Russian spy in Britain take effect from Wednesday. Russia has denied any involvement in the poisoning.
Hungary’s forint firmed 0.2 percent against the euro ahead of a central bank meeting today at which rates are expected to stay on hold.
Inflation has picked up along with forint volatility in the wake of Turkey’s currency crisis, but Jackson said he was not expecting the bank to shift its tone until its September meeting.
Overnight, Venezuela slashed five zeros from prices as part of a broad economic plan to tame hyperinflation that economists say is likely to escalate the crisis.
Venezuelan sovereign dollar bonds fell across the curve with the 2028 issue down 1 cent to 24.55 cents in the dollar according to Thomson Reuters data.
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Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1044.19 +10.54 +1.02 -9.86
Czech Rep 1063.51 +1.55 +0.15 -1.36
Poland 2258.29 +22.21 +0.99 -8.24
Hungary 36469.31 +32.35 +0.09 -7.38
Romania 8231.34 -3.46 -0.04 +6.16
Greece 717.73 +5.12 +0.72 -10.55
Russia 1060.37 -4.97 -0.47 -8.15
South Africa 51174.32 +72.79 +0.14 -2.59
Turkey 90185.99 +1451.23 +1.64 -21.80
China 2733.83 +35.36 +1.31 -17.34
India 38314.01 +35.26 +0.09 +12.50
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 25.72 25.73 +0.04 -0.75
Poland 4.31 4.31 +0.02 -3.02
Hungary 323.15 323.73 +0.18 -3.91
Romania 4.64 4.65 +0.08 +0.77
Serbia 117.90 117.88 -0.02 +0.42
Russia 67.23 66.96 -0.40 -14.23
Kazakhstan 361.17 361.17 +0.00 -7.86
Ukraine 27.68 27.65 -0.11 +1.68
South Africa 14.38 14.52 +0.99 -14.07
Kenya 100.90 100.80 -0.10 +2.18
Israel 3.65 3.65 -0.00 -4.81
Turkey 6.12 6.08 -0.65 -38.08
China 6.84 6.85 +0.15 -4.94
India 69.71 69.81 +0.14 -8.43
Brazil 3.97 3.97 +0.04 -16.52
Mexico 18.94 19.00 +0.32 +3.74
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 392 -1 .02 7 69.36 1
Reporting by Claire Milhench; Editing by Kirsten Donovan