Fed Impact Measured by Emerging Markets as PMIs Give Asia Lift

Justin Carrigan

03 May 2019, 02:11 PM IST

(Bloomberg) -- Emerging market traders were getting their heads round a set of European PMI releases that were broadly negative and a set of Asian ones that were generally positive. With Chinese and Japanese markets closed, the result was predictably mixed, with both the MSCI stock and currency indexes treading water by the middle of the European morning. The won was among the winners in the foreign-exchange stakes as Korea’s manufacturing index indicated expansion for the first time since October, while the ruble retreated the most in Russian holiday-thinned trading. Brazil and Mexico were next in line to release PMI figures.

Powell Market Impact

The other PMI to consider -- the Powell Market Impact -- was echoing through prices rather faintly. The very fact that most stock markets were in the green even after the slide on the S&P 500 yesterday suggested traders weren’t overly spooked by the Fed chairman’s comment that the currently low rate of U.S. inflation may be "transitory." Korean and Philippine stocks clocked up the biggest gains, the latter getting their first chance to react to Tuesday’s debt upgrade from S&P Global Ratings.

Ruble Change?

While it would be unfair to read too much into the ruble’s decline on a holiday, it’s difficult to ignore how suddenly the currency has changed direction. It has weakened on five of the past six trading days, leaving the dollar-ruble rate poised for a serious attempt at closing convincingly above its 50-day moving average for the first time since January, after four bids in February, March and early April. The trend is especially supported by evidence that the rally in oil is finally hitting the buffers.

Saudi Bond Signs

Saudi Arabia’s bonds may be turning more attractive as data show the kingdom is recovering from the 2014-15 oil collapse. Bank lending in the first quarter grew at the fastest pace in about three years, while economic activity has picked up and consumer spending is on the rise. Dana El Baltaji, Bloomberg’s EMEA emerging markets team leader, points out that yields on the nation’s 2029 dollar bonds have fallen about 60 basis points since they were issued in January, less than the average for the rest of emerging markets this year.

Rate Rarity

Finally, watch out for a rarity in the current world of central bank decisions: a rate increase. Economists expect policy makers in the Czech Republic to raise the key rate today by a quarter point to 2 percent, the highest in more than a decade. The background is that rapid wage growth and the koruna’s failure to strengthen as much as forecast have left Czech inflation at the top of the central bank’s 1 percent to 3 percent tolerance band.