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Emerging Markets Gain With Rand, Aussie in Hunt for High Yields

Emerging Markets Gain With Rand, Aussie in Hunt for High Yields

Emerging Markets Gain With Rand, Aussie in Hunt for High Yields
A pedestrian is reflected in an electronic stock board outside a securities firm in Tokyo, Japan (Photographer: Tomohiro Ohsumi/Bloomberg)

(Bloomberg) -- Stocks in developing nations and high-yielding currencies rose on confidence central banks around the world will go out of their way to avoid jolting financial markets.

The MSCI Emerging Markets Index climbed to the highest in more than a year as prospects for a U.S. interest-rate hike this month remained subdued and investors awaited this week’s European Central Bank policy meeting. Currencies from South Africa and Australia were the biggest winners as the dollar weakened against most of its 16 major peers, while European bonds rose. Brent crude slipped toward $47 a barrel and copper advanced.

Emerging Markets Gain With Rand, Aussie in Hunt for High Yields

Emerging-market assets have gained ground since American payrolls data on Friday damped speculation the U.S. would raise rates in September, and there’s little sign of angst in financial markets. While investors look toward service sector on Tuesday and comments by Fed Bank of San Francisco President John Williams for insight on tightening U.S. monetary policy, central banks across much of Asia and Europe are in the midst of easing cycles.

“We are not expecting the Fed to raise rates this month and at best we have one hike in December, so without the prospect of a near-term rate hike the volatility in the market has been suppressed,” said Peter Dragicevich, a foreign-exchange strategist at Commonwealth Bank of Australia in London. “That generally favors the higher-yielding currencies.”

Stocks

The MSCI Emerging Markets Index rose 1 percent at 6:44 a.m. in New York, extending this year’s gain to 16 percent. That compares with a 4.6 percent year-to-date advance for the MSCI World Index of developed countries.

The Bank of America Merrill Lynch GFSI Market Risk Index, a measure of future price swings implied by options trading on global equities, interest rates, currencies and commodities, fell to the lowest level since the start of the year.

“Monetary policy is going to remain easy around the world and that will continue to be supportive of risk assets,” said James Woods, a strategist at Rivkin Securities in Sydney. "The non-farm payrolls last week indicate there’s no rush for the Fed to raise rates.”

The Stoxx Europe 600 Index was little changed near this year’s high, with trading volumes 34 percent less than the 30-day average. Germany’s benchmark DAX Index added 0.4 percent and is close to erasing its annual decline.

Fresenius SE rose 3.2 percent after the healthcare provider said it will pay $6.42 billion for Spain’s largest private hospital company, IDC Salud Holding S.L.U.

Ingenico Group SA, dragged technology companies to the worst performance on the Stoxx 600, slumping 13 percent after the electronic payments processor lowered its annual profit margin and revenue growth forecasts.

Futures on the S&P 500 Index added 0.1 percent, after the gauge rose 0.4 percent on Friday. U.S. markets were closed on Monday for Labor Day. Monsanto Co. gained 2.8 percent in early New York trading. Bayer AG sweetened its takeover bid for the second time, saying it would be prepared to pay $127.50 a share for the U.S. seed giant provided a negotiated deal can be reached.

Currencies

The Bloomberg Dollar Spot Index lost 0.2 percent for the second day in a row. The yen reversed earlier losses to trade 0.2 percent higher at 103.26 per dollar. The Bank of Japan should refrain from stepping up monetary stimulus until after the Fed decides on interest rates, according to Koichi Hamada, an economic adviser to Prime Minister Shinzo Abe.

South Africa’s rand climbed 1.5 percent, extending gains after the nation’s economy expanded a faster-than-forecast 3.3 percent in the second quarter.

The Aussie appreciated 0.8 percent, the second-best performance. The Reserve Bank of Australia kept its benchmark interest rate at 1.5 percent in Governor Glenn Stevens’s final meeting, a decision forecast by all 26 economists in a Bloomberg survey.

India’s rupee climbed to a four-month high, trading for the first time since Urjit Patel took over as governor of the central bank.

Commodities

Oil fell after a cooperation agreement signed on Monday by Russia and Saudi Arabia didn’t yield specific measures to reduce a global oversupply.

Brent crude dropped 0.6 percent to $47.36 a barrel in London. The contract jumped as much as 5.5 percent on Monday as news broke Saudi Arabia and Russia would make a “significant” joint-statement on the oil market at the G20 summit in China. It later pared those gains as the two nations stopped short of announcing a freeze in output.

An earlier freeze proposal was derailed in April over Saudi Arabia’s insistence that Iran participate. Iran will support any move to stabilize markets, the nation’s Oil Minister Bijan Namdar Zanganeh said in Tehran on Tuesday after a meeting with OPEC Secretary General Mohammed Barkindo, according to the ministry’s Shana news service. He didn’t say whether Iran was ready to accept any limits on its own production.

Gold held a three-day advance as prospects for a U.S. interest-rate increase this month receded. Bullion for immediate delivery rose 0.4 percent to $1,331.86 an ounce, while silver gained 0.3 percent and platinum rose 0.8 percent. Aluminum advanced 0.4 percent and copper increased by 0.3 percent.

Bonds

Spanish bonds climbed for a third day, pushing the nation’s 10-year yield down four basis points to 0.97 percent. The yield on similar-maturity Italian bonds slide three basis points to 1.13 percent, while that on German bunds was little changed at minus 0.06 percent.

Japan’s 30-year bonds rose for the first time in two weeks, pushing their yield down by 2 1/2 basis points to 0.50 percent. An auction of the tenor achieved a higher-than-estimated price on Tuesday and the bid-to-cover ratio rose from the previous sale.

U.S. Treasuries due in a decade were little changed from Friday, with the yield at 1.61 percent. The rate on the two-year notes, which tend to be more sensitive to the monetary policy outlook, increased by one basis point to 0.80 percent.

The extra yield investors demand to hold emerging market debt over Treasuries narrowed one basis point to 335, according to JPMorgan Chase & Co. indexes. The spread has shrunk by 172 basis points from this year’s peak in February as investors faced with near-zero rates in the developed world hunt for higher-yielding assets.

The BlackRock Inc. money manager who recommended in July joining a “great migration” into emerging-market debt is now advising investors to be selective. The time of “indiscriminate buying” is coming to an end and investors need to exercise caution or face being caught in a selloff if sentiment changes, Sergio Trigo Paz, head of emerging-market debt at BlackRock said in a Bloomberg TV interview on Monday.

--With assistance from Emma O'Brien Liau Y-Sing and Jonathan Burgos To contact the reporters on this story: James Regan in Hong Kong at jregan19@bloomberg.net, Stephen Kirkland in London at skirkland@bloomberg.net. To contact the editors responsible for this story: Stephen Kirkland at skirkland@bloomberg.net, Paul Dobson at pdobson2@bloomberg.net.