London - Emerging equities rose on Tuesday after losing almost 5 percent over the past two sessions, though uncertainty over global central banks' policy trajectory kept the pressure on, with many currencies staying in the red.
Stocks gained 0.3 percent to move off one-month lows after Federal Reserve policymaker Lael Brainard effectively quashed prospects of a US rate rise this month.
“The Fed speaker ...[appeased] the market a little bit, meaning emerging currencies are trading better,” said Luis Costa, head of CEEMEA FX and debt strategy at Citi.
Costa said markets would still be keen to play interest rate differentials between developed and emerging markets.
“The shape of things in G3... is still enabling global liquidity and the switch from developed markets into EM - down the road that can be painful when we hit the wall, but for the time being we continue in the cycle,” he added.
After steep falls on Monday the dollar rose slightly while German and US 10-year bond yields were just off 2-1/2-month highs, with expectations the Fed will raise rates later this year still in place amid uncertainty over whether European and Japanese central banks can further expand their stimulus programmes.
Futures still price in a 15 percent chance of a Fed hike at its Sept. 20-21 meeting, the CME Group's FedWatch Tool showed.
Societe Generale noted the market was “risk-on with a strongish dollar”, adding: “The Treasury market didn't over-react to Ms Brainard either, and 10-year yields are still about 11 bps higher than they were a week ago.”
Accordingly, stronger-than-expected Chinese industrial and retail data provided little support, with Hong Kong shares falling 0.3 percent and adding to the previous session's 3 percent fall, while mainland markets were flat .
Asian currencies traded at multi-month troughs to the dollar as local traders said the market preferred to stay long going into next week's Fed meeting.
The South African rand eased 0.25 percent as deputy finance minister Mcebisi Jonas said political rifts risked harming the economy.
But it rose off session lows after data showed the current account deficit contracted to a better-than-expected 3.1 percent of gross domestic product from a revised 5.3 percent in the first quarter. Benchmark bond yields slipped 7 basis points.
In central Europe, focus was on the Czech crown where investors are positioning for an end to the currency's 27 per euro exchange rate cap. That has driven euro-crown forwards to record lows in recent days, indicating the currency will bust its ceiling in coming months .
The forwards weakened again on Tuesday but stayed off the record lows as central bank governor Jiri Rusnok indicated he was in no hurry to exit the regime.
Citi's Costa noted that recent data from Germany, Prague's main investment and trade link, had been lacklustre and added: “For the moment, I find it very difficult to trade the exit from the cap, I think it is premature.”
Neighbouring Hungary's forint fell 0.2 percent against the euro after Luxembourg Foreign Minister Jean Asselborn suggested the country be excluded from the European Union over its anti-immigrant policies.
Ukraine dollar-bonds recovered some of the losses suffered over the past two days, with issues rising 2-3 cents across the curve, according to Tradeweb.
Ukraine and Russia both indicated they were ready to talk out of court regarding a dispute over a $3 billion bond that Kiev owes to Moscow.
REUTERS