EMERGING MARKETS-Turkey’s lira leads EMEA FX losses, stocks come off record highs

PUBLISHED: Fri, 15 Jan 2021 09:36:09 GMT

* MSCI’s EM stocks index set for third week of gains

* Rouble, shekel and zloty to see FX intervention

* Analysts say U.S. dollar, yield strength temporary

By Ambar Warrick

Jan 15 (Reuters) – Turkey’s lira led losses across emerging-market currencies on Friday as a survey showed 2021 inflation remaining elevated, while stocks fell from record highs as focus turned to a U.S. stimulus package.

The lira dropped as much as 0.7%, underperforming its peers in Europe, the Middle East and Africa (EMEA), after a central bank survey saw end-2021 inflation at about 11.15%, compared with more than 14% in December.

High inflation has hampered economic activity in Turkey for more than a year, pressuring the lira and prompting the bank to raise interest rates since late 2020.

The rouble fell about 0.5%, tracking a decline in oil prices. The Russian central bank is also set to start buying foreign currency later in the day, after about 10 months of selling to support the rouble.

Strength in Israel’s shekel, which jumped to a 24-year high to the dollar, prompted measures from the Bank of Israel to curb the currency’s strength.

U.S. Treasury yields jumped with the dollar in tow on Thursday, after U.S. inflation expectations rose on dovish comments from Federal Reserve Jerome Powell, and after President-elect Joe Biden proposed a $1.9 trillion stimulus plan.

But analysts saw this as a temporary blip, positing sustained strength in emerging markets this year.

“We acknowledge the risk that U.S. Treasury yields may rise further in the coming weeks, which in turn would squeeze USD/CEEMEAs higher in tandem with the dollar index,” Piotr Matys, senior EM FX strategist at Rabobank, wrote in a note.

“However, we would still see such a price action as a corrective rebound – following the sharp fall in the value of the dollar vs CEEMEAs after the U.S. presidential election – rather than the beginning of a sustainable reversal.”

BofA’s weekly fund flow stats (based on Emerging Portfolio Fund Research data until Wednesday) pointed to another good week for emerging markets. Emerging-market debt funds enjoying large inflows at $2.3 billion and emerging equities took in the sixth- largest inflows ever at $7.0 billion.

The MSCI’s index of emerging-market stocks fell 0.5% from a record high, but was set for a third straight week of gains. The currencies index was set to end the week largely unchanged.

The Polish zloty sank against the euro after the central bank said it was likely to intervene to weaken the currency further.

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)

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

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