Stocks, currencies rise after Fed’s Powell calmed the hawks

  • The MSCI EM index defined for the best session in a month
  • Currency Index Hits September Highs
  • Russian ruble stable ahead of NATO-Moscow talks

Jan. 12 (Reuters) – Emerging market equities jumped 1.5% on Wednesday to reach seven-week highs, as most currencies strengthened against a slightly weaker dollar, after the president’s comments Federal Reserve Secretary Jerome Powell at a congressional hearing were less belligerent than expected.

With US inflation data later in the day set to post an increase to its highest level in decades, speculation about four rate hikes this year has accelerated. But Powell didn’t stoke the hawks, revealing little beyond what was already reported. Read more

The MSCI Emerging Market Currency Index (.MIEM00000CUS) hit its highest level since September, as stock market gains put the stock index (.MSCIEF) on track for its best session in addition to a month.

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“Powell’s re-naming hearing confirmed what the market had already built into the price… At this point, a March (interest rate) take-off shouldn’t do much to change the tone of the FX complex. “TD Securities strategists said.

“With the quantitative tightening apparently launched in the second half of 2022, we believe risky markets and some currencies should benefit tactically. “

Chinese stocks led the gains after slowing factory exit inflation gave way to easing monetary policy. The Hong Kong Technology Index (.HSTECH) jumped 5%, with Alibaba (9988.HK) and Meituan (3690.HK) up 6% and 9%, respectively.

Kazakh stocks (.KASE) lost 0.7% when trading resumed a day after President Kassym-Jomart Tokayev said Russian troops would start leaving the country in two days after stabilizing the nation of Central Asia following serious unrest. Read more

The Russian ruble ditched its initial gains for stable trade, ahead of Moscow’s talks with NATO later in the day, with the prospect of slim breakthroughs. Russia held live fire exercises with troops and tanks near the Ukrainian border on Tuesday.

Russian CDS on the rise

If there is no escalation after the talks, the risks lie more or less in the market price, said Elena Lovén, senior portfolio manager, EM equities at Swedbank Robur.

“With this scenario, Russia has good potential because the economy is doing well, businesses are growing, and the dividend yield is high.”

Russian stocks (.IMOEX) rose 0.5%, but about 11% below highs reached in October.

Russian stocks struggle to keep up

The Turkish lira fell 0.1%. Opinion polls show that more Turks now believe an opposition alliance is better suited than President Tayyip Erdogan and his ruling AK party to end the economic crisis that has engulfed their country.

The Czech koruna remained close to its nine-year highs against the euro, after data showed inflation was broadly in line with expectations.

Sri Lankan bonds have remained broadly insensitive, showing skepticism about a resolution to the country’s debt problem, even after assurances from the central bank.

For the CHART on the performance of emerging markets forex in 2021, see http://tmsnrt.rs/2egbfVh

For the CHART on the performance of the MSCI Emerging Index in 2021, see https://tmsnrt.rs/2OusNdX

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Reporting by Susan Mathew in Bangalore;

Our Standards: Thomson Reuters Trust Principles.

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