Market Watch | Emerging Markets Rally as Traders Scale Back Bets on Fed Rate

LAGOS, Nigeria, Capital Markets in Africa: Emerging-market currencies headed toward the steepest advance in more than two months while stocks and bonds climbed as the weakest U.S. jobs data since 2010 boosted optimism the Federal Reserve will delay raising interest rates.

The MSCI Emerging Markets Currency Index added 0.9 percent at 12:55 p.m. in London, led by Indonesia’s rupiah and Malaysia’s ringgit. A measure of developing-market stocks rose for a third day, topping its 50-day moving average. Philippine shares paced gains in Asia, while banking and oil shares in Russia jumped as crude advanced the most in almost two weeks. Turkish bonds jumped for a fourth day. The rand extended a five-day gain after its credit rating was affirmed by S&P Global Markets on Friday.

The jobs report crushed bets on the U.S. central bank increasing interest rates in the next two months, with the odds of a hike this month falling to to 4 percent from 30 percent a week ago. Investors have returned to riskier assets in the last two weeks following a selloff that pared the MSCI Emerging Markets Index’s 2016 gain to 1.7 percent by the end of last month. Contributions to exchange-traded funds that invest in emerging markets rose last week for the first time since April, ending a month of outflows that reached $4.9 billion.

 “The juice today comes from the terrible non-farm payroll number on Friday,” said Nathan Griffiths, a senior emerging-market equities manager who helps oversee $1.1 billion at NN Investment in The Hague and holds a greater share of Russian and Indian stocks than the emerging-market benchmark. “We will see how sustainable is the boost
to risk because it is a bad enough number that people should start to worry
about the U.S. economy.”

The odds of a U.S. rate hike in July sank to 33 percent, according to Fed futures data compiled by Bloomberg. The addition of 38,000 workers, the fewest since September 2010, followed a 123,000 advance in April that was smaller than previously estimated, U.S. Labor Department data showed on Friday.

For a QuickTake explainer on the U.S. monthly jobs data, click here

Fed Chair Janet Yellen speaks in Philadelphia later on Monday and may offer guidance on the extent to which Friday’s disappointing payrolls data will push back the timetable for tightening monetary policy.

Currencies 
The MSCI Emerging Markets Currency Index climbed for a third day. The rupiah strengthened 1.7 percent. India’s rupee climbed 0.5 percent before an interest-rate decision on Tuesday. All 19 economists in a Bloomberg survey see central bank Governor Raghuram Rajan keeping the benchmark repurchase rate at 6.5 percent. A measure tracking the greenback posted its biggest slide in four months on Friday.

Hungary’s forint and the Polish zloty gained more than 0.3 percent against the euro. The rand extended gains for a fifth day, its longest series of advances since November, after S&P Global Markets affirmed the South African country’s credit rating.

The ringgit, the worst performer among Asian currencies in May, rose 1.1 percent.

“The ringgit was oversold in the last month, so short-covering post payrolls is helping the currency,” said Sue Trinh, Hong Kong-based head of Asian foreign-exchange strategy at Royal Bank of Canada.

The lira fell 0.2 percent after jumping the most in a week on Friday. Core inflation fell to 8.77 percent in May from 9.41 percent the previous month, a drop that gives encouragement the Turkish central bank can continue a cycle of interest-rate cuts that started in March.

Stocks 
The MSCI Emerging Markets Index rose 1 percent to 824, poised for the highest close since May 2. All 10 industry groups increased, paced by commodity companies and consumer-discretionary shares.

Russia’s Micex Index rebounded 1.5 percent after slumping 1.1 percent over the last five trading days with Gazprom PAO and Sberbank PJSC gaining more than 2 percent each. The PX Index in the Czech Republic rose 1 percent, led by electricity producer CEZ AS. Ibovespa futures and the real rose in Brazil.

Egyptian and Philippino shares rose more than 1 percent, while equity gauges in Malaysia and Indonesia advanced 0.6 percent. Thai shares were poised to close at the highest level since July 23, while Taiwan’s Taiex index increased for a third day.

The Hang Seng China Enterprises Index of mainland companies traded in Hong Kong rose for a seventh day, the longest winning streak since April 2015, while the Shanghai Composite Index slipped for the first time in three days before the release of economic data this week. Mainland markets will be closed after Wednesday for public holidays.

Bonds 
Turkish bonds gained for a fourth day, cutting the yield on 10-year government notes eight basis points to 9.48 percent, the lowest in more than a month. Russian bonds extended a two-day gain, cutting the yield on 10-year debt by a combined 28 basis points.

Ukraine’s Eurobond due in 2023 rose for a third day, pushing the yield down 15 basis points to 8.72 percent, the lowest level since December. Polish 10-year notes declined, pushing the yield up six basis points to the highest in more than four months.

Bonds rose in Asia. Indonesian notes climbed, pushing the 10-year yield down six basis points, the most since May 17, to 7.80 percent. The similar-maturity yield in Malaysia fell five basis points, while that of Thailand slid 10 basis points.