EMERGING MARKETS-South African rand leads EMEA FX gains, while stocks hit record high

PUBLISHED: Wed, 20 Jan 2021 09:12:21 GMT
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* Turkish lira lags EMEA peers, stocks come off record highs

* Biden inauguration due later in the day

* Rouble gains on strong oil prices

By Ambar Warrick

Jan 20 (Reuters) – South Africa’s rand led gains across emerging market currencies on Wednesday as domestic inflation remained steady, while stocks hit a record high on hopes of bumper COVID-19 stimulus measures in the United States.

The rand rose about 0.6% and was set for a third day of gains as it marked a steady recovery from losses made last week.

December inflation came in as expected, with investors now watching for an interest rate decision by the South African central bank on Thursday. A Reuters poll sees the bank holding rates through the year.

Equities rose, and the dollar softened after Janet Yellen, U.S. President-elect Joe Biden’s nominee for Treasury Secretary urged the government to “act big” on spending.

Investors were anticipating U.S. President-elect Biden’s inauguration later in the day.

The MSCI’s index of emerging market stocks rose 1% to a record high, while currencies added about 0.2%.

“Only once a successful ratification in Congress emerges will it become clear which effect of the support measures will dominate on the financial markets: the USD-positive effect of rising (real) rate expectations or the USD-negative effect of rising inflation expectations,” Esther Reichelt, FX and EM analyst at Commerzbank wrote in a note.

Emerging market currencies and bonds had come under pressure from a recent rise in U.S. treasury yields over the past few weeks, as investors priced in increased U.S. debt issuance, as well as an eventual rise in inflation.

But with global interest rates still at record lows, and with more stimulus on the way, the prospects for emerging market risk assets remain bright.

Turkey’s lira slightly lagged its peers on Wednesday after Biden’s choice for secretary of state accused NATO Turkey of not acting like an ally and said Washington would review if further sanctions are required on Ankara over its acquisition of a Russian air defense system.

Concerns over local monetary policy also stifled the lira’s prospects, while Turkish stocks came off record highs.

Russia’s rouble rose about 0.5%, taking support from higher oil prices as markets bet that increased U.S. spending would eventually result in higher fuel demand.

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

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Ambar Warrick in Bengaluru; Editing by Angus MacSwan)

(c) Copyright Thomson Reuters 2021. Click For Restrictions – https://agency.reuters.com/en/copyright.html

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