Brazil’s Real Is Sole Winner After FOMC Surprise: EM Review

The Brazilian real was the only developing-world currency to gain against a strengthening greenback over the week after the country’s central bank delivered its third straight interest-rate hike this year and left the door open for more. It’s a different story in Hungary where, according to Equilor, traders doubt the monetary authority will tighten policy, which made the forint rank among the worst currencies in emerging markets.

Highlights:

  • Federal Reserve officials sped up their expected pace of policy tightening amid optimism about the labor market and heightened concerns for inflation. The signal of sooner-than-anticipated interest-rate hikes sapped appetite for risk globally, sending a gauge of emerging-market currencies to post its worst week since September
  • Turkey’s lira posted its biggest weekly drop since April after U.S. President Joe Biden and Turkish counterpart Recep Tayyip Erdogan were unable to come to a resolution over Ankara’s purchase of Russian missile defenses, but committed to maintain talks on the issue
  • India’s retail inflation unexpectedly quickened in May, signaling deepening supply side pressures in an economy that was mostly under a lockdown to stem the coronavirus’s spread. The spike in consumer prices has revived debate among sovereign bond traders over how long the central bank could retain its dovish policy stance
  • China’s industrial production rose 6.6% in May on a two-year average basis -- which strips out the impact of last year’s pandemic -- while retail sales grew 4.5%, about half of its pre-pandemic rate. Home prices grew at the fastest pace in nine months
Asset moves as of 4:20 p.m. in

New York

Weekly
MSCI EM stocks index-1.5%
MSCI EM FX index-1.2%

Bloomberg Barclays global EM local-currency bond index

(Up to Thursday)

-1.25%

ASIA:

  • Asia’s emerging economies have accumulated their highest level of foreign-exchange reserves since 2014, offering a powerful buffer against market volatility if the U.S. Federal Reserve changes course. Central bank holdings of foreign currencies in the region’s fast-growing emerging economies hit $5.82 trillion as of May, their highest since August 2014.
  • Indonesia’s central bank left its benchmark rate at a record-low 3.5%, sustaining its support for a pandemic-hit economy and saying it’s prepared to weather any volatility from a more hawkish Fed
  • Taiwan’s central bank kept borrowing costs unchanged for a fifth quarter as it grapples with new risks from inflation and a surging currency. Policy makers left the benchmark lending rate at 1.125%

EMEA:

  • Iranians voted Friday in a presidential election expected to see a hardline conservative replace the more moderate Hassan Rouhani, complicating efforts to restore a landmark nuclear accord that has major implications for Middle East security and oil markets
  • South Africa’s rand weakened back to 14 per U.S. dollar. President Cyril Ramaphosa tightened restrictions on alcohol sales, extended a night-time curfew and reduced the permitted attendance at public gatherings as the country grapples with a third wave of coronavirus infections
  • Kenya raised $1 billion in its first Eurobond sale in two years as the East African nation balances between the need to fund its economic recovery and lower its debt burden

LatAm:

  • The International Monetary Fund privately estimates that a deal allowing Argentina to reschedule payments on $45 billion owed to the lender will be pushed into 2022 as President Alberto Fernandez has little incentive to quickly agree on the basis of a new program
  • Power utility Eletrobras jumped after Brazil’s senate passed a proposal to privatize the company, as the government’s plan to shrink the size of the state plows ahead
  • Chile’s interest-rate market has been thrown into convulsions not seen since the early stages of the Covid crisis as inflation accelerates and the economy roars back to life, pressuring the central bank to raise rates
  • Nine days after a presidential runoff in Peru, electoral authorities have completed the vote count that showed leftist Pedro Castillo edging out Keiko Fujimori by 44,058 ballots. The central bank lifted its growth and inflation forecasts for this year

©2021 Bloomberg L.P.

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