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EMERGING MARKETS-Fed rate cut hopes spur gains in FX, stocks; lira shines

Credit: REUTERS/MURAD SEZER

Most emerging market currencies and stocks made headway on Thursday as the dollar was dented by hopes of U.S. interest rate cuts, helping the Turkish lira hit a three-month high.

By Sruthi Shankar

July 4 (Reuters) - Most emerging market currencies and stocks made headway on Thursday as the dollar was dented by hopes of U.S. interest rate cuts, helping the Turkish lira hit a three-month high.

MSCI's index of developing world stocks .MSCIEF rose about 0.3%. Chinese equities were an exception, edging lower on uncertainty about the U.S.-China trade dispute and U.S. President Donald Trump's complaints of currency manipulation.

Fuelling interest in riskier assets was a slew of soft U.S. data on Wednesday that added to bets the Federal Reserve will cut rates as early as July. Expectations that nominated European Central Bank chief Christine Lagarde will keep to a dovish policy path also helped send bond prices up and the dollar down. US/FRX/

"You've got accommodative global monetary policy and the growth outlook doesn't look too bad, particularly if the trade war subsides, and that's a sweet spot for emerging markets," said Graham Stock, senior sovereign strategist at BlueBay Asset Management in London.

Turkey's lira TRY= jumped about 0.6% to 5.5960 per dollar, its strongest level since April 5.

Cooling inflation numbers and a seeming thawing of tensions between Ankara and Washington over Turkey's purchase of Russian defence systems have helped the currency notch up solid gains in a week that also saw strong demand for Turkish sovereign debt.

The Turkish treasury said on Wednesday its $2.25 billion Eurobond sale attracted an order book of around three times the issue size. It said the amount raised from international capital markets so far in 2019 was some $8.7 billion, exceeding the $8 billion it had planned for the year.

Final orders for Tuesday's bond sale totalled $6.25 billion, one of the arranging banks said.

"I put more emphasise on the global backdrop than specifics of the Turkey story, in terms of the demand for bond issuance," said BlueBay's Stock. "But it is fair to say that despite some balance of payments pressure and concerns around the policy mix, the debt metrics are quite favourable."

Capital inflows into emerging market assets helped the South African rand ZAR= gain 0.5%, although a fall in oil prices and dividend payments hurt Russia's rouble RUB=.

The Indian rupee INR= hovered near three-month highs versus the dollar ahead of Prime Minister Narendra Modi's first budget since he won a second term by a landslide over a month ago.

India predicted that economic growth in the fiscal year 2019 could rise to 7.0% from 6.8% last year, which was the slowest pace in five years.

Neighbouring Pakistan, which faces mounting economic headwinds, got approval from the International Monetary Fund for a three-year, $6 billion loan package to rein in debts and stave off a looming balance of payments crisis.

In eastern Europe, the Romanian leu EURRON= edged lower against the euro ahead of a central bank meeting that analysts expect will leave interest rates unchanged at 2.50%.

For GRAPHIC on emerging market FX performance 2019, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance 2019, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB

(Reporting by Sruthi Shankar in Bengaluru; Editing by Catherine Evans)

((sruthi.shankar@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 6749 6328; Reuters Messaging: sruthi.shankar.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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