Emerging currencies weaken on Fed rate bets as oil batters ruble

BLOOMBERG

Emerging-market currencies weakened for a second day and stocks fell from a 2016 high as sliding oil prices weighed on assets of commodity exporters and growing wagers the Federal Reserve will raise interest rates as soon as the next quarter damped demand for risk.
The South African rand and Russia’s ruble depreciated at least 1.7 percent, leading declines among 24 developing-nation currencies, as Brent crude traded below $40 a barrel for a second day.
The offshore yuan weakened after China’s central bank cut its daily reference rate by the most since January. Shares in the Arabian Gulf extended the longest stretch of losses in two months. Egyptian stocks rallied for a second day after the central bank devalued the currency by the most since 2003.
While the Fed is forecast to keep borrowing costs unchanged at a two-day meeting that starts Tuesday, the probability is rising that improving US economic data will encourage policy makers to push forward further tightening.
That’s denting appetite for emerging-market assets following a rally in the past month, while signs that Iran won’t join major producers in freezing output stoked concern a global glut will persist.
“Declining oil prices and some nervousness about the upcoming Fed meetings explain why emerging markets are a bit weaker,” said Maarten-Jan Bakkum, a senior strategist at NN Investment Partners in The Hague, whose favored equity markets include India, Mexico and Argentina.
“We should also not forget that markets had been really strong in the preceding weeks,” pointed out Bakkum.
A gauge tracking 20 emerging-market currencies weakened 0.7 percent by 1:05 p.m. in London. The MSCI Emerging Markets Index retreated 1.3 percent to 792.66 as all 10 industry groups declined.
Bonds across the developing world fell, widening the premium investors demand to own the notes over US Treasuries for a second day.
A 17 percent rally in the MSCI gauge through yesterday from a trough in January had pushed the gauge’s 14-day relative strength index to 72.15, the highest since April and above the threshold of 70 that signals to some analysts that an asset has risen too much. That measure fell to 64 today.
The Bloomberg GCC 200 Index of stocks in the oil-exporting Gulf Cooperation Council lost 0.8 percent as equities in Abu Dhabi, Saudi Arabia and Qatar decreased 0.9 percent or more.
BHP Billiton Ltd. plunged 5.6 percent in Johannesburg after Macquarie Research downgraded the world’s biggest mining company’s shares in the last few months.

and the Bloomberg Commodity Index fell 1 percent.
Drugmakers paced declines on India’s benchmark with Lupin Ltd. slumping 7.8 percent after a report the company’s Goa unit received observations from the U.S. Food and Drug Administration.
CEZ AS fell 1.9 percent in Prague, the most in three weeks. Central Europe’s biggest power generator said profit will shrink by more than a third this year as electricity prices languish at their lowest level in more than a decade.
The Hang Seng China Enterprises Index of mainland stocks traded in Hong Kong retreated 0.9 percent even as the Shanghai Composite Index eked out a 0.2 percent gain in late trading amid speculation state-backed funds continued to intervene to support the market during annual policy meetings.
Currencies
The rand extended losses, plunging 2.4 percent to 15.8940 per dollar, the biggest loser among developing nations, after South African police said Finance Minister Pravin Gordhan failed to meet the second deadline to answer questions about the so-called rogue unit at the country’s tax authority. The investigation will not be stalled by an individual who demands “preferential treatment,” the Directorate for Priority Crime Investigation said in an e-mailed statement.
The ruble depreciated 1.7 percent to 71.2244 per dollar, set for the worst daily performance since March 8. Falling oil prices overshadowed optimism that relations with Europe and the U.S. will improve after President Vladimir Putin ordered some forces to withdraw from Syria.
The Mexican peso and the ringgit weakened at least 0.7 percent. Malaysia’s currency is “very undervalued” and the nation’s assets are attractive as commodity prices are reaching a bottom, Mark Mobius, executive chairman at Templeton Emerging Markets Group, said in a speech in Kuala Lumpur Tuesday.
Bonds
India’s two-year bonds rose, pushing the yield down four basis points to 7.26 percent, after inflation cooled more than estimated, boosting speculation the central bank will lower interest rates.
Russia’s 10-year bond yield rose for a sixth day, climbing eight basis points to 9.51 percent. The rate is still down from as high as 10.95 percent in January amid growing bets the central bank will resume interest-rate cuts.
The premium investors demand to own emerging-market sovereign debt over U.S. Treasuries widened four basis points to 417 basis points, according to JPMorgan Chase & Co. Indexes.