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EMERGING MARKETS-Turkish lira bounces on cabinet news; emerging assets feel dollar heat
May 24, 2016 / 9:56 AM / a year ago

EMERGING MARKETS-Turkish lira bounces on cabinet news; emerging assets feel dollar heat

LONDON, May 24 (Reuters) - Turkey’s lira bounced off near four-month lows on Tuesday after investor-friendly deputy prime minister Mehmet Simsek kept his post in government, though Turkish and other emerging assets came under pressure from a firmer dollar.

Expectations have swung in favour of a June rate hike by the U.S. Federal Reserve after robust data and suggestions by officials that a delay would be unwise. That has eroded some of emerging markets’ recently acquired gloss, taking stocks down 6.5 percent so far this month.

MSCI’s emerging equity index fell half a percent, resuming its fall after two days in the black, while most currencies weakened against the dollar.

The lira initially fell a quarter percent to the dollar on fears Simsek would be excluded from the new cabinet as well as expectations the central bank would cut the upper band of the interest rate corridor by 25-50 basis points.

The currency rebounded 0.6 percent after the news that Simsek, a key member of Turkey’s economic management team, had kept his job.

Istanbul shares jumped 1.7 percent and ten-year lira yields fell more than 50 bps after initially hitting three-month highs.

But a rate cut will likely bring pressure back to the lira.

SEB strategist Per Hammarlund said a cut would hit the currency and increasee fears about political interference in monetary policy.

“Global risk appetite is what drives 70-80 percent of the move, so it is mostly about changing sentiment towards emerging markets,” Hammarlund said.

“But if the central bank cuts now when sentiment is souring, they are reinforcing an already weakening tendency. It will amplify the move. The low that we saw (in the lira) earlier this year is definitely in play ... the new year lows of 3.10 perhaps.”

In line with the global trend, other emerging currencies also slipped, with the rand falling 0.6 percent and the rouble falling 0.3 percent to the dollar

South African markets are also watching domestic developments, after a court ruled in favour of reinstating corruption charges against President Jacob Zuma and the statistics agency revised down the growth rate for the last quarter of 2015 to just 0.4 percent.

Bond markets are focused on Russia’s new eurobond, its first in three years which it said had already garnered bids of $5.5 billion. Books are due to close later today and Moscow has hinted at a yield of 4.65-4.90 percent, roughly a 50 basis point premium to the existing 2023 issue.

Russian yield spreads to Treasuries were flat at 250 bps, a one-week high

Foreign funds are wary of the bond, fearing repercussions due to U.S. sanctions on some Russian entities including VTB, the owner of the investment bank arranging the deal. Societe Generale credit strategist Regis Chatellier said much depended on the issue’s eligibility for the EMBI Global bond index.

“If it goes to the index, dedicated investors will have to ask themselves what to do. If it is not euroclearable, and it is not part of the index, the pool of investors will be much reduced,” Chatellier said.

“But they will find some buyers here and there, because theoretically if the money goes to the sovereign then this transaction is not under sanction.”

Elsewhere, Mozambique’s restructured 2023 dollar bond fell one cent after government failed to come up with cash to meet a loan repayment deadline on Monday.

Nigeria’s naira fell 1 percent in the one-month non-deliverable forward market ahead of a central bank meeting that could deliver a rate hike to combat inflation but could also introduce a new parallel exchange rate.

The government is now using a lower, 285 per dollar rate for petrol imports rather than the official 197 rate.

The Hungarian forint rose 0.4 percent against the euro ahead of a central bank meeting that may cut rates by 10-15 bps while signalling the end of the easing cycle.

The zloty hovered at 3-1/2-month lows as tensions flared with the European Union over the rule of law in Poland .

For GRAPHIC on emerging market FX performance 2016, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2016, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2016, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2016, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 785.92 -2.98 -0.38 -1.04

Czech Rep 874.15 -0.68 -0.08 -8.59

Poland 1825.68 +6.71 +0.37 -1.80

Hungary 26498.67 +130.42 +0.49 +10.78

Romania 6391.49 +5.60 +0.09 -8.75

Greece 641.24 -7.86 -1.21 +1.57

Russia 885.71 +6.16 +0.70 +17.00

South Africa 46834.14 +296.21 +0.64 +2.26

Turkey 78173.56 +1407.71 +1.83 +8.99

China 2822.04 -21.60 -0.76 -20.26

India 25307.67 +77.31 +0.31 -3.10

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2016

Czech Rep 27.01 27.02 +0.04 -0.05

Poland 4.44 4.44 +0.11 -4.06

Hungary 315.88 317.17 +0.41 -0.39

Romania 4.51 4.51 +0.03 +0.20

Serbia 122.85 122.70 -0.12 -1.12

Russia 66.85 66.79 -0.09 +9.13

Kazakhstan 336.56 336.67 +0.03 +1.17

Ukraine 25.11 25.10 -0.04 -4.61

South Africa 15.70 15.71 +0.07 -1.49

Kenya 100.90 100.80 -0.10 +1.29

Israel 3.87 3.86 -0.16 +0.58

Turkey 2.98 2.99 +0.60 -1.98

China 6.55 6.55 -0.02 -0.96

India 67.65 67.40 -0.37 -2.15

Brazil 3.57 3.57 +0.13 +10.98

Mexico 18.47 18.52 +0.27 -7.02

Debt Index Strip Spd Chg %Rtn Index

Sov‘gn Debt EMBIG 422 0 .06 7 14.53 1

All data taken from Reuters at #N/A *The record could not be found GMT. Currency percent change calculated from the daily U.S.

close at 2130 GMT.

additional reporting by Claire Milhench

Our Standards:The Thomson Reuters Trust Principles.
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