The Russian ruble prolongs its earnings; Omicron worries about limiting emerging equity gains

  • Russian ruble rises for fourth day in a row
  • Russian-led troops to start leaving Kazakhstan in two days
  • Turkey’s current account deficit higher than forecast
  • China’s shares tumble amid rising COVID-19 cases, brakes

Jan. 11 (Reuters) – Emerging market currencies strengthened on Tuesday, with the Russian ruble rising for a fourth straight session as Moscow talks with the West, while gains in developing-country equities were limited by concerns of Omicron affecting Chinese equities.

All eyes will be on US Federal Reserve Chairman Jerome Powell’s naming speech later today for clues on monetary policy.

Ahead of Wednesday’s US inflation figures which are expected to show an increase, Wall Street banks are now expecting four interest rate hikes this year – one more than the Fed reported.

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With the dollar making small moves, most emerging market currencies strengthened (.MIEM00000CUS).

The Russian ruble rose 0.4%, with oil prices also providing support. Talks between Moscow and Washington on Monday did not result in any breakthrough, with the two sides remaining distant from their differences over Ukraine. Read more

“A good outcome would be if there was no escalation, if we ended these negotiations with other negotiations to come, that would be my baseline scenario,” said Kiti Pantskhava, deputy director of research at BCS. Global Markets, adding that while it wouldn’t improve Russian risk sentiment, it wouldn’t make it worse.

Rising geopolitical tensions have started to highlight the ruble’s underperformance against some emerging market peers.

Main concerns are Moscow’s meetings with NATO members and the Organization for Security and Cooperation in Europe this week.

In Kazakhstan, Russian-led troops who have helped quell the nationwide unrest will begin to leave the country in two days, President Kassym-Jomart Tokayev said.

This is good news in terms of trading the fixed income markets, said Pantskhava of BCS.

“If everything went according to plan, and smoothly, it would be kind of a demonstration of the validity of regional political alliances and how they work.”

Kazakhstani hard currency bonds have been volatile after slipping more than 20 months lower last week.

Tokayev called for the stability of the foreign exchange market in order to build confidence in the local tenge currency. After falling more than 3% in 2021, the tenge is down around 0.3% in January.

Turkey’s volatile pound fell 1.6% after data showed the country’s current account surplus reversed to a more than expected deficit of $ 2.681 billion in November.

The MSCI Emerging Markets Equity Index (.MSCIEF) rose for a third consecutive session, up 0.5%, although stocks from Mainland China and Hong Kong (.HSI), (.CSI300) , (.SSEC) lost between 0.1% and 1% amid increasing coronavirus cases and brakes. Read more

In Central and Eastern Europe, following Poland’s 50 basis point hike last week, Romania on Monday announced a cautious 25 basis point hike to 2%, suggesting it is falling further behind.

For the CHART on emerging market foreign exchange performance in 2021, see http://tmsnrt.rs/2egbfVh

For the CHART on the performance of the emerging MSCI index in 2021, see https://tmsnrt.rs/2OusNdX

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Reporting by Susan Mathew in Bengaluru, editing by Ed Osmond

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