Price monster in South Africa under control

Emerging market currencies and bonds had come under pressure from a recent rise in US treasury yields over the past few weeks.

22 January 2021 | Economics

AMBAR WARRICK



South Africa's rand led gains across emerging market currencies on Wednesday as domestic inflation remained steady, while stocks hit a record high on hopes of bumper Covid-19 stimulus measures in the United States.

The rand rose about 0.6% and was set for a third day of gains as it marked a steady recovery from losses made last week.

December inflation came in as expected, with investors now watching for an interest rate decision by the South African central bank. A Reuters poll sees the bank holding rates through the year.

Equities rose, and the dollar softened after Janet Yellen, US President-elect Joe Biden's nominee for Treasury Secretary urged the government to “act big” on spending.

Investors were anticipating US President-elect Biden's inauguration later in the day.

The MSCI's index of emerging market stocks rose 1% to a record high, while currencies added about 0.2%.

Only once a successful ratification in Congress emerges will it become clear which effect of the support measures will dominate on the financial markets: the USD-positive effect of rising real rate expectations or the USD-negative effect of rising inflation expectations,” Esther Reichelt, FX and EM analyst at Commerzbank wrote in a note.



Emerging markets

Emerging market currencies and bonds had come under pressure from a recent rise in US treasury yields over the past few weeks, as investors priced in increased US debt issuance, as well as an eventual rise in inflation.

But with global interest rates still at record lows, and with more stimulus on the way, the prospects for emerging market risk assets remain bright.

Turkey's lira slightly lagged its peers on Wednesday after Biden's choice for secretary of state accused NATO Turkey of not acting like an ally and said Washington would review if further sanctions are required on Ankara over its acquisition of a Russian air defence system.

Concerns over local monetary policy also stifled the lira's prospects, while Turkish stocks came off record highs.

Russia's rouble rose about 0.5%, taking support from higher oil prices as markets bet that increased US spending would eventually result in higher fuel demand.– Nampa/Reuters

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