LONDON, March 15 (Reuters) - A dollar pullback ahead of an all-but-certain U.S. interest rate rise allowed emerging equities and currencies to post modest gains on Wednesday, while the Indian rupee outperformed for the second day, racing to new 16-month highs.
With futures pricing in more than a 90 percent chance the U.S. Federal Reserve would raise rates later in the day, investors are instead focused on what it says about the pace of hikes for the rest of the year.
Emerging markets have eased off 19-month highs on growing expectation the Fed will raise rates more than twice this year, but they are being cushioned by better domestic growth and company earnings alongside global investors’ desire for yields.
MSCI’s emerging equity index inched up 0.2 percent , trading just off two-week highs for their fourth day of gains while currencies were flat to around 0.3 percent firmer against the greenback .
“The main question is really regarding the rhetoric....the market is pricing in something like 2.5 to 3 rate hikes this year, so if there is any risk that it could be more dovish then this could be positive for emerging markets,” Credit Agricole strategist Guillaume Tresca said.
Tresca noted big flows into emerging assets this year, with EPFR Global-tracked equity funds receiving $6.5 billion year-to-date and local currency emerging debt funds last week seeing their biggest inflow in nine weeks nL5N1GN26M
“(Inflows) have been steady year-to-date and even over the past weeks whatever the expectations regarding the Fed interest rates - so it seems markets were not really worried by the Fed,” he added.
The Indian rupee rose 0.2 percent, having already posted its biggest weekly gain in more than a year after Prime Minister Narendra Modi’s pro-business ruling party’s regional election win showed that his reform agenda has popular backing.
Credit ratings agency Moody’s said the result was a credit positive for India.
The lira firmed to five-day highs against the dollar, even though the Turkish economy’s dire state was highlighted by data showing unemployment near seven-year highs and a rise in inflation forecasts for the end of the year.
Confidence about any impact of a Fed move was also reflected in primary emerging bond markets, which saw Kuwait raising $8 billion on Tuesday, taking almost $30 billion in orders, while Lebanon and Russian sub-sovereign Gazprom prepared new issues .
The five-year tranche’s yield tightened further to 2.78 percent from Tuesday’s 2.85 percent and 2.88 percent at issuance while the 10-year bond, issued at 3.62 percent, tightened to 3.52 percent
In central Europe, the Polish zloty, which has been under pressure amid expectations for euro zone rate hikes from 2018, slipped 0.2 percent to the euro. Analysts reckon the central bank will hold off rate rises despite data showing above-forecast inflation in February.
“It remains to be seen how relaxed central European central banks will remain as core inflation keeps moving higher, even if gradually. For the moment, Poland (central bank) is likely to remain wholly dovish,” ING analysts told clients.
In Uzbekistan, there were some signs authorities may be mulling modest currency reform - the sum currency has fallen sharply this week against the dollar and rouble in official as well as black markets .
Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 941.23 +1.26 +0.13 +9.16
Czech Rep 980.08 +1.49 +0.15 +6.34
Poland 2243.87 +5.49 +0.25 +15.19
Hungary 32636.18 -50.12 -0.15 +1.98
Romania 7901.21 +10.95 +0.14 +11.52
Greece 636.78 -2.14 -0.33 -1.07
Russia 1068.14 +4.45 +0.42 -7.31
South Africa 44725.91 +73.36 +0.16 +1.88
Turkey 89853.10 +716.58 +0.80 +14.99
China 3241.94 +2.61 +0.08 +4.46
India 29427.27 -15.36 -0.05 +10.52
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.00 27.01 +0.01 +0.02
Poland 4.32 4.31 -0.14 +1.96
Hungary 310.21 310.82 +0.20 -0.45
Romania 4.54 4.54 -0.00 -0.09
Serbia 123.84 123.66 -0.15 -0.40
Russia 59.02 59.21 +0.32 +3.81
Kazakhstan 318.40 318.17 -0.07 +4.79
Ukraine 26.85 26.88 +0.11 +0.56
South Africa 13.10 13.14 +0.29 +4.82
Kenya 102.75 102.70 -0.05 -0.37
Israel 3.66 3.66 +0.12 +5.20
Turkey 3.73 3.74 +0.21 -5.53
China 6.91 6.91 +0.01 +0.45
India 65.65 65.75 +0.15 +3.50
Brazil 3.16 3.17 +0.14 +2.82
Mexico 19.61 19.66 +0.24 +5.63
Debt Index Strip Spd Chg %Rtn Index
Sov‘gn Debt EMBIG 337 0 .06 7 54.60 1
All data taken from Reuters at 09:46 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see) (Additional reporting by Karin Strohecker and Davide Barbuscia; Editing by Hugh Lawson)