Rand Shatters Emerging-Market Calm as South African GDP Withers
(Bloomberg) -- South Africa’s rand went into a tailspin after the country reported its biggest first-quarter GDP contraction since 2009, sliding more than 1% versus the dollar and putting an end to its three-day rally. Robert Brand, Bloomberg’s Cape Town-based editor, said before the data were released that a worse-than-forecast reading would send the currency back through 14.50 per dollar, a level that has largely held since November. That’s exactly what it did. South African forward-rate agreements were pricing in more than a 100% probability of a 25-basis point rate cut this year.
Russian stocks are providing a welcome respite from the trade-provoked gloom descending across the emerging markets. It probably won’t happen today, but the dollar-denominated RTS Index is on the cusp of reaching its highest level since 2014. Srinivasan Sivabalan, Bloomberg’s London-based emerging-market editor, points out that, while oil has been on the retreat and the ruble steady against the dollar in the past three months, analysts have increased the average earnings forecast for index members by more than 8%.
More broadly, it was a story of uneasy calm across emerging markets, with no progress on the trade front in prospect. The Mexican peso rebounded, standing out in a generally resilient-looking currency market, but stocks as measured by the MSCI index erased about half of yesterday’s more than 1% advance. Spreads on sovereign dollar bonds were an average 3 basis points narrower versus Treasuries, though that seemed to be more reflective of moves in U.S. yields, which rose for the first time in six days.
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