Lira falls 1 pct as emerging markets feel pre-Fed heat
Rome-Italy (Mar 8) A rise in U.S. Treasury yields weighed on emerging assets on Wednesday, with the Turkish lira shrugging off central bank pledges for more monetary tightening to slump one percent against the dollar.
Investors in most markets have retreated to the sidelines before Friday's U.S. jobs data which may offer clues as to the pace of monetary tightening by the Federal Reserve, though a rate rise next week has been more or less priced in. However 10-year Treasury yields inched to six-week highs .
Emerging equities seesawed around flat, though Hong Kong-listed Chinese stocks rose 0.3 percent. Chinese local markets shrugged off data showing the country's first trade deficit in two years .
Turkey is one of the markets that will likely be worst hit in event of a more hawkish Fed, given its current account deficit and low domestic policy credibility. South Africa too could suffer, especially after data showing a surprise growth contraction towards end-2016, highlighted its sluggish economy.
The lira has slipped almost 5 percent in the past 10 days as the likelihood rose of a Fed move this month and did not receive any support from governor Murat Cetinkaya who signalled more monetary tightening was on the way if needed.
Simon Quijano-Evans, EM strategist at Legal & General said that while an upswing in U.S. yields was negative for the emerging markets asset class, "you are bound to get bigger moves on higher-beta EM stories such as Turkey and South Africa."
While Cetinkaya has lifted the central bank funding rate to a near five-year high over 10.6 percent, he failed to mention plans to shift to more orthodox monetary policy.
Quijano-Evans noted, however, the central bank had managed to tighten policy in recent weeks without verbal interference from the government and that has helped calm lira markets.
"That should show (Turkey's) leadership an independent central bank is the most important policy tool they can have," he added.
The South African rand fell 0.5 percent to the dollar , deepening its losses as data showed business confidence fell in February. The Polish zloty slipped 0.2 percent before a central bank meeting that will likely hold rates unchanged
Source: Reuters
