EM bourses rally on rise in US payroll data
Emerging market stocks rallied to two-week highs yesterday as a benign US jobs report eased worries about inflation and faster rate hikes, while fears of a trade war have been tempered by the possibility of exemptions from US tariffs for some exporters.
MSCI’s benchmark emerging equities index leapt 1.2 per cent, following developed markets higher after Friday’s US payrolls data showed rising employment but muted wage growth following a spike in January.
Some of the biggest gains came in Asian equities, where Hong Kong and Indian stocks soared 1.9 per cent and Taiwan shares gained 1.2 per cent.
Emerging Europe also rallied, with Turkish stocks up 1.5 per cent and Hungary up almost 1 per cent.
The latest US jobs data cooled expectations for the number of rate hikes from the US Federal Reserve this year, alleviating potential concerns over pressure on global borrowing costs while currency moves were modest.
“The softer wage data meant emerging currencies haven’t really come under pressure, probably due to the shift in expectations for the Fed,” said William Jackson, senior emerging markets economist at Capital Economics.
US 10-year Treasury yields did rise last Friday but hovered broadly unchanged yesterday.
Meanwhile, the average yield spread of emerging market bonds over US Treasuries on the JPMorgan EMBI Global Diversified index fell by 3 basis points to 286 bps, the lowest level since end-February.
Adding to the positive sentiment were hopes the United States would open the door for more exemptions from its steel and aluminium tariffs after granting them to Canada and Mexico.
China continued to warn that any trade war would only bring disaster to the world economy.
South Korea, which is the third largest steel exporter to the US, said it would “deploy all possible means” to respond to the tariffs and has already put in a request for a waiver.
The won climbed to a sixweek high and shares in Seoul rose 1 per cent to a five-week high, helped by the prospect of talks between North Korea and Washington which could herald a breakthrough in nuclear tensions.