EM shares, currencies gain as markets turn focus to Fed
(June 10): Emerging market shares on Wednesday were set to post their longest winning streak in more than a year,
while the currencies firmed as the US dollar weakened amid a cautious mood ahead of the US Federal Reserve's verdict on the health of the economy.
Investors wait to see if the US Fed reinforces the upbeat tone set by the latest prospects of economic recovery.
Amid speculation that it might take measures to curb a recent steepening of the US yield curve, the greenback weakened broadly.
MSCI's index of developing world currencies held near three-month highs.
"We fully expect that the Fed will be as dovish as necessary to avoid a mini 'taper-tantrum', keeping the peak-virus trade nicely on track," said Jeffrey Halley,
senior market analyst, Asia Pacific at OANDA, but noted that a deeper correction cannot be ruled out.
The Fed statement is expected at 1800 GMT, followed by a news conference by Fed Chair Jerome Powell.
The Chinese yuan traded flat at 7.07 to the US dollar, while the South Korean won firmed about 0.7%
In the interbank market, Russia's rouble strengthened 0.3% despite the drop in crude prices, but the currency struggled to hold gains on the local exchange.
Lower inflation has given the central bank room to further cut its benchmark interest rate, Governor Elvira Nabiullina said on Wednesday.
The Turkish lira — an underperformer in the recent risk rally — snapped a five-session decline after unemployment fell on a month-on-month and annual basis.
President Tayyip Erdogan said he would provide incentives to boost employment and the economy.
Among equities, the EM stock benchmark rose for a ninth straight session, up 0.5%, though the underlying picture was mixed.
China mainland stocks slipped after data showed a deepening deflation in producer prices, signalling a prolonged impact on overseas demands and casting doubts over how swift an economic recovery could be.
Heavyweight South Korea gained 0.3% despite data showing unemployment surged to its highest in a decade,
while Taiwan shares hit their highest in more than three months after a ban on equities' short-selling was lifted early. Turkey shares rose 0.8%, while Russia's index fell 0.5%.
Within the EM stocks space, Indian and Brazilian markets have underperformed this year, down about 16% against a decline of 9% for the broader index.
With economic growth already weak before the coronavirus crisis, recovery prospects remain daunting as both countries are among those reporting highest rises in the daily number of infections.
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