EMERGING MARKETS-Fed hike, Italy budget fear weigh on emerging FX

  • Reuters
  • Stock Market News
EMERGING MARKETS-Fed hike, Italy budget fear weigh on emerging FX
Credit: © Reuters.

By Claire Milhench

LONDON, Sept 27 (Reuters) - Emerging currencies weakened, bond spreads rose and stocks trod water on Thursday in the wake of another U.S. rate rise, with reports of a possible delay to Italy's budget weighing on investor appetite for riskier assets.

The dollar index .DXY rose 0.3 percent to a one-week high after the U.S. Federal Reserve raised rates by a quarter of a percentage point, and projected another rate hike in December, three more next year and one increase in 2020. 10-year U.S. Treasury yields US10YT=RR fell more than 5 basis points to 3.048 percent, pulling back from four-month highs as market participants had been braced for a more hawkish stance.

"The Fed event was widely anticipated and the tweaks they made were so small it really doesn't have much of an impact on EM so traders are looking for what's next," said Per Hammarlund, chief emerging markets strategist at SEB.

"It's a bit directionless at the moment ... that's why you are seeing a mixed reaction."

The average yield spread of emerging market sovereign bonds over safe-haven U.S. Treasuries on the JPMorgan (NYSE: JPM ) EMBI Global Diversified index .JPMEGDR rose to 347 basis points, a six-day high.

Currencies were mainly weaker, with the Mexican peso MXN= down 0.4 percent, also hindered by U.S. President Donald Trump's criticism of Canada over the slow pace of NAFTA talks. South Africa's rand ZAR=D3 fell 0.2 percent and India's rupee INR= eased 0.1 percent.

The Israeli shekel ILS= weakened 0.5 percent in the wake of comments from Trump that he wanted a two-state solution to resolve the Israeli-Palestinian conflict. Arab allies of the United States are strong supporters of a two-state solution. the Turkish lira TRY= firmed 0.3 percent, even as economic confidence tumbled the most in a decade. said there was investor caution ahead of Italy's budget presentation, which some fear could lead to a blowout of the country's deficit and put the government on a collision course with the European Union.

A newspaper report on a possible delay to the budget fuelled a sell-off in the country's bonds and stocks and the euro. "Markets are a bit apprehensive - that is weighing on some of the Eastern European currencies," Hammarlund said.

The Czech crown EURCZK= fell 0.26 percent against the euro and the Polish zloty EURPLN= softened 0.13 percent.

MSCI's benchmark emerging equities index .MSCIEF failed to make much headway as a lacklustre opening in emerging Europe followed a mixed performance in Asia.

The biggest fallers included Poland .WIG20 and India .NSEI , both down 0.5 percent, and South Africa .JTOPI , down 0.6 percent.

Chinese mainland .SSEC fell 0.5 percent with China's industrial profit growth hitting a five-month low, fanning concerns about faltering domestic demand. that index provider FTSE Russell would include Chinese A-shares in its key benchmarks from June next year offered little support. Market participants had expected the announcement, which is likely to attract initial net inflows of $10 billion from passive investors. in Asia, South Korean .KS11 stocks rose 0.7 percent as the market reopened after a three-day holiday. Indonesian shares .JKSE climbed 0.6 percent with the central bank delivering an expected 25-basis-point rate rise, its fifth since May. Argentina's peso ARS= firmed about 0.1 percent after the International Monetary Fund increased its three-year lending programme with Argentina by $7 billion to $57 billion, on the condition that the central bank halt its full-scale interventions to support the peso. GRAPHIC on emerging market FX performance 2018, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance 2018, see https://tmsnrt.rs/2OusNdX

Equities

Latest

Net Chg % Chg % Chg

on year

Morgan Stanley (NYSE: MS )

Emrg Mkt Indx .MSCIEF 1047.41

+1.39 +0.13 -9.59

Czech Rep

.PX

1102.45

+1.68 +0.15 +2.25

Poland

.WIG20

2290.43 -14.02 -0.61 -6.94

Hungary

.BUX

36118.04 +122.00 +0.34 -8.28

Romania

.BETI

8361.59 -13.31 -0.16 +7.84

Greece

.ATG

699.93

-1.96 -0.28 -12.77

Russia

.IRTS

1166.90

+6.12 +0.53 +1.08

South Africa

.JTOPI 50070.98 -290.88 -0.58 -4.69

Turkey

.XU100 99457.99 +309.13 +0.31 -13.76

China

.SSEC

2791.78 -15.04 -0.54 -15.58

India

.BSESN 36342.84 -199.43 -0.55 +6.71

Currencies

Latest

Prev

Local

Local

close currency currency

% change % change

in 2018

Czech Rep

EURCZK=

25.71

25.64 -0.27

-0.70

Poland

EURPLN=

4.28

4.27 -0.17

-2.35

Hungary

EURHUF= 323.38

323.41 +0.01

-3.97

Romania

EURRON=

4.66

4.66 -0.04

+0.39

Serbia

EURRSD= 118.38

118.36 -0.02

+0.02

Russia

RUB=

65.83

65.87 +0.05 -12.42

Kazakhstan

KZT=

361.97

360.37 -0.44

-8.06

Ukraine

UAH=

28.28

28.14 -0.50

-0.48

South Africa ZAR=

14.15

14.12 -0.23 -12.69

Kenya

KES=

100.90

100.80 -0.10

+2.18

Israel

ILS=

3.60

3.58 -0.51

-3.35

Turkey

TRY=

6.07

6.09 +0.32 -37.60

China

CNY=

6.88

6.88 -0.01

-5.39

India

INR=

72.65

72.59 -0.08 -12.14

Brazil

BRL=

4.03

4.03 -0.00 -17.83

Mexico

MXN=

18.91

18.83 -0.39

+3.91

Debt

Index Strip Spd Chg %Rtn Index

Sov'gn Debt 11EML EMBIG 373

6

.20 7 74.53 1

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