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EMERGING MARKETS-U.S.-China tensions, Turkish sanction woes dampen EM mood

Published 2020/12/07, 12:00
Updated 2020/12/07, 12:06
© Reuters.
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* Lira underperforms as sanction threat looms

* Dollar index rebounds from 2018 lows

* U.S.-China tensions weigh on Asian markets

By Sruthi Shankar

Dec 7 (Reuters) - Most emerging market currencies weakened on Monday as the dollar broke a losing run, while fresh U.S.-China tensions and worries over potential sanctions against Turkey also dampened the mood.

Turkish markets suffered most losses in London morning trade, with the lira TRY= down 0.6% and banking stocks .XBANK dropping 1%.

Germany said that European finance ministers will discuss measures against Turkey at their meeting on Monday as there has been no de-escalation in the conflict in the eastern Mediterranean in the past months. followed U.S. lawmakers including mandatory Turkish sanctions in a defence spending bill on Friday, adding pressure on a currency that has failed to catch up with its peers on the back of COVID-19 vaccine optimism. the dollar index's .DXY rebound from 2018 lows kept Russia's rouble RUB= , South Africa's rand ZAR= and the Hungarian forint HUF= under pressure.

Risk aversion hit global markets after Reuters reported that Washington is preparing new sanctions on Chinese officials over a Hong Kong crackdown. China said it firmly opposes U.S. interference in its domestic affairs, if the media report is true. stock markets of Shanghai CSI300 .SSEC and Hong Kong .HSI fell almost 1%, dragging down the MSCI's EM equities index .MSCIEF from a fresh 2018 peak hit earlier in the session.

"Markets are right in the "sweet spot" of Goldilocks rallies that are seduced by the promise of more stimulus intersecting with vaccine hopes," analysts at Mizuho Bank said in a note.

"But the U.S. and global economy are far from out of the woods. If anything, record high new infections and U.S. jobs disappointment point to the risks of air pockets interrupting this recovery."

Russian stocks .IMOEX slipped as oil prices LCOc1 CLc1 fell after a continued surge in coronavirus cases globally forced a series of renewed lockdowns. O/R

Europe's emerging markets also traded lower, with bourses in Budapest .BUX , Bucharest .BETI and Prague .PX down between 0.3% and 0.8%.

The Hungarian forint EURHUF= , the Polish zloty EURPLN= and the Czech crown EURCZK= all weakened against the euro heading into a make-or-break week for the European Union's 1.8 trillion euro ($2.2 trillion) budget and coronavirus recovery fund.

Poland and Hungary are blocking the financial package over a clause linking access to the cash to respect for the rule of law.

For GRAPHIC on emerging market FX performance in 2020, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB

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