EM STOCKS, CURRENCIES UP

EMERGING markets (EM) stocks rose 1 percent yesterday after US Federal Reserve chairman Jerome Powell calmed concerns over policy tightening, while a surge in inflation in South Africa lifted the rand on hawkish central bank expectations.

MSCI’s index of EM shares was set for its best session in three weeks after Powell sounded dovish in his testimony to Congress, saying inflation would not be the only determinant in interest rates decisions.

“It was enough to let markets move back into their happy place,” said Jeffery Halley, a senior market analyst at Oanda.

After a strong session in Asia, Russian shares moved 0.5 percent closer to record highs and South African stocks posted their best session this month.

Still, the broader EM stocks index is down more than 1 percent in June after two consecutive monthly gains as a hawkish turn by the Fed last week led to hefty losses. Higher US interest rates lessen the appeal for riskier emerging markets assets.

Currencies in Turkey and Russia firmed as the dollar pulled further away from over two-month highs.

The rand advanced after data showed headline inflation in May rose to a 30-month high of 5.2 percent.

“Back in May, the (central bank) assessed the risks to its inflation outlook as to the upside. Today’s data shows this risk has realised, emboldening expectations that the central bank could join other EM banks in steadily lifting rates,” Simon Harvey, FX analyst at Monex Europe, said yesterday.

Turkey’s lira cheered central bank governor Sahap Kavcioglu’s announcement late on Tuesday that the country was in talks to secure currency swap agreements with four countries and was close to a deal with two of them.

This comes after it lifted its existing swap facility with China to $6 billion (about R85.6) this month, and tripled its currency-swap agreement with Qatar to $15bn last year.