April 29, 2015 / 9:17 AM / 5 years ago

EMERGING MARKETS-Emerging stocks retreat from highs as world awaits Fed

LONDON, April 29 (Reuters) - Emerging stocks retreated from 7-1/2 month highs on Wednesday with investors looking to the U.S. Federal Reserve for inspiration ahead of a monetary policy statement due later.

MSCI emerging stocks fell 0.6 percent, taking a breather after six straight days of gains that took the index to its highest level since last September. Emerging assets have recently surged as fears have receded of an imminent U.S. rate rise and expectations are growing of additional Chinese stimulus.

Analysts said some investors are now starting to wonder whether the rally was overblown though a dovish statement from the Fed is likely to lure many back into emerging markets.

“We had 48 hours of a strong dollar/emerging market retracement and now hours before U.S. GDP data and the FOMC (Federal Open Market Committee), there has been a lot of reshuffling of positions,” said Luis Costa, a senior emerging market debt and foreign exchange strategist at Citi.

“If U.S. data doesn’t improve, markets will be inclined to throw the towel in on dollar longs, we may erase the possibility of a Fed rate hike this year and that will boost risky assets.”

Elsewhere, Poland became the first emerging economy to issue external debt at negative yields. It sold 580 million wiss franc zero coupon three-year note at a yield of minus 0.213 percent, a reflection of the abundant liquidity on world markets as many central banks expand bond-buying programmes

The zloty pulled back 0.2 percent against the euro .

Russia’s rouble was on the back foot against the dollar, falling 0.2 percent as oil prices fell and investors braced for a stiff rate cut when the central bank meets on Thursday.

Middle Eastern shares surged after Saudi Arabia’s King Salman carried out major reshuffles in the line of succession and his cabinet.

Saudi stocks were up 0.5 percent, Dubai gained 1 percent and Abu Dhabi advanced 0.3 percent.

The Thai baht fell 0.4 percent against the dollar after the central bank unexpectedly cut interest rates by 25 basis points to 1.5 percent citing weaker than anticipated economic growth.

For GRAPHIC on emerging market FX performance 2015, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2015, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2015, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2015, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Additional reporting by Sujata Rao; Editing by Toby Chopra)

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