LONDON, Feb 27 (Reuters) - Emerging stocks and currencies hit a soft patch on Tuesday as markets waited to hear from the new U.S. Federal Reserve chair while South African assets broadly perked up after a cabinet reshuffle saw the return of familiar faces to key ministries.
MSCI’s emerging markets index snapped a two day winning streak to fall 0.2 percent. Much of the drag came from Asia where Chinese stocks snapped a six-day winning streak to fall as much as 1.5 percent as markets pondered the impact of certain amendments in the wording of China’s constitution.
Markets were also awaiting Federal Reserve Chairman Jerome Powell’s debut appearance in front of U.S. Congress, seen as critical for financial markets with investors nervous about the central bank’s policy normalisation following years of stimulus after the financial crisis almost a decade ago.
“There is a little bit of cautiousness ahead of Powell’s speech later today,” said Jakob Christensen, head of EM research at Danske Bank, adding he was watching out for clues as to how the Fed will meet the challenges from higher fiscal spending in the world’s biggest economy.
“In light of the quite mature U.S. business cycle and the added fiscal stimulus to the economy, will he open the box for four hikes this year?”
But the focus was firmly on South Africa where President Cyril Ramaphosa brought back some familiar faces in a cabinet reshuffle.
Veteran civil servant Nhlanhla Nene, who was sacked by ex-President Jacob Zuma two years ago, was appointed finance minister. Ex-finance minister Pravin Gordhan, a popular figure with investors, will take the reigns at the key public enterprises department, which oversees around 300 state-owned firms, including loss-making South African Airways and cash-strapped power utility Eskom.
“What is really encouraging is that Gordhan has been put in place as minister for public enterprises, which is one of the Achilles’ heels of the South African economy,” said Danske Bank’s Christensen.
“Getting reforms in there will be vital for revitalising South Africa’s growth prospects, which is more important than a few fiscal savings here and there.”
While Nene was quick to say the budget tabled last week, which featured the first VAT hike in over two decades, might not prevent more ratings downgrades, South Africa’s equity markets welcomed the reshuffle.
Stocks extended their gains for a third day, rising 0.6 percent, while yields on the local 10-year benchmark sovereign bond hovered just above 8 percent.
The rand weakened 0.5 percent, but the losses came in the wake of a recent rally that saw the currency trade at its strongest level in three years. Having gained more than 7 percent since the start of the year against the dollar, the rand is still one of the top performers this year.
Another reshuffle came in Saudi Arabia, where King Salman swapped out some of the kingdom’s top military officers and several deputy ministers in a broad shake-up seen as elevating younger officials in key economic and security areas. Saudi stocks traded a touch higher.
In central banking news, South Korean policy makers voted unanimously to keep rates steady, as expected.
And Hungary is expected to do the same later in the day with markets watching out for new measures such as swap tenders and purchasing mortgage bonds introduced by policymakers recently to stimulate borrowing.
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Reporting and graphic by Karin Strohecker, additional reporting by Claire Milhench Editing by Peter Graff