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Emerging market stocks surged on Tuesday on positive cues from Chinese trade figures, while most currencies edged higher ahead of U.S. inflation data that could spur more hawkish moves from the Federal Reserve.
MSCI’s index of emerging market stocks jumped 0.9% and was set for its best day in three weeks. Polish stocks were the best performers across Europe, the Middle East and Africa, rising 0.5% in early trade.
Data showed Chinese exports grew much faster than expected in June, pointing to a strong recovery in global demand as COVID-19 measures were eased. But officials warned that growth may slow in the second half of the year.
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“While a collapse in trade is highly unlikely, we do expect moderation in the months ahead as the economy gradually slows,” Mitul Kotecha, chief EM Asia and Europe strategist at TD Securities, wrote in a note.
Chinese blue-chip stocks rose 0.2%, as did the yuan. Tencent, one of the largest stocks on the MSCI emerging market index, surged more than 4% after China’s market regulator approved its plan to take search engine Sogou Inc private.
But gains in most emerging market currencies were muted, with MSCI’s index rising 0.1%. Investors were wary of another spike in U.S. inflation, which could prompt the Fed into tightening its policy sooner than expected.
South Africa’s rand sank 0.7% to a more than two-month low as investors remained on edge over civil unrest in the country.
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The currency had tumbled 1.6% on Monday as violence over the jailing of former president Jacob Zuma spread to the capital Johannesburg.
Russia’s rouble rose 0.4%, tracking some gains in oil prices, while Turkey’s lira added 0.2%. Data showed Turkish industrial output surged in May from a year earlier.
Unexpected hawkish signals from the Fed had cut short a rally in emerging markets this year, as a spike in U.S. treasury yields made risky assets appear less attractive. Fears of Fed rate hikes have somewhat offset positive cues from improving economic growth across emerging markets.
“Even though central bank chair Jerome Powell underlined that the Fed continues to expect a temporary phase of raised inflation rates, if the next inflation publications were to suggest that inflation is more persistent, the Fed’s approach might change further,” You-Na Park-Heger, FX and EM analyst at Commerzbank, wrote in a note.
In central Europe, the Czech crown led gains among its peers, rising 0.3% ahead of local inflation data later in the day.
For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX
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For CENTRAL EUROPE market report, see
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For RUSSIAN market report, see
(Reporting by Ambar Warrick; Editing by Subhranshu Sahu)