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Moves From Turkey and Argentina Fail to Reassure Nervous Investors

Published Sep 04, 2018 03:52 Updated Sep 04, 2018 05:52
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© Bloomberg. Customers purchase snacks from a mobile stall on Eminonu Square in Istanbul, Turkey, on Friday, Aug. 17, 2018. Turkish President Recep Tayyip Erdogan argued citizens should buy gold, then he said sell. Add dramatic swings in the lira, and the country’s traders are now enthusiastically doing both. Photographer: Ismail Ferdous/Bloomberg
 
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(Bloomberg) -- Pledges from Turkey and Argentina to shore up the lira and peso failed to bring comfort to most emerging markets, putting a gauge of developing-nation currencies on course for its lowest level in more than a year. The dollar advanced a fourth day amid rising tension between China and the U.S. over trade.

MSCI Inc.’s index of currencies dropped for the fifth time in six days, led by the rupiah and rand. Turkish bonds rallied, while the lira retreated, after Monday’s vow by the central bank to reshape its monetary policy-stance. Argentina’s dollar bonds also advanced following President Mauricio Macri’s announcement of emergency measures to stem the crisis. Emerging-market stocks were poised to end a four-day losing run, led by tech shares, while the extra yield investors demand to hold develop-nation bonds instead of Treasuries fell.

“The measures announced by Argentina and Turkey are probably not enough to lead to a significant improvement in their fundamentals,” said Tsutomu Soma, general manager for fixed-income trading at SBI Securities Co. in Tokyo. “Contagion risks to other emerging markets are growing especially as the Fed tightens, leading to sell-offs of some assets from weaker economies.”

Turkey and Argentina have been at the epicenter of emerging-market tumult this year as investors assess their idiosyncratic issues as well as global headwinds including tighter central bank policy and the China-U.S. trade dispute. Coupled with a rising dollar and U.S. rates, the pressure on assets across developing nations this year has been relentless.

Argentina’s Fiscal Tightening Bids Gradualism Farewell: Analysts

Here’s what other analysts are saying about the latest in emerging markets:

‘Set to Suffer’

Michael Every, head of Asia financial markets research at Rabobank in Hong Kong:

  • “Emerging-market FX are set to suffer almost regardless of what they do, the only issue is how much"
  • The dollar will remain on the front foot against emerging markets as long as the U.S. continues to raise rates and boost fiscal spending while keeping the trade war fears on the radar

‘Further Pain’

Lukman Otunuga, research analyst at FXTM:

  • “Emerging market currencies could be destined for further pain if the turmoil in Turkey and Argentina intensifies”
  • “The combination of global trade tensions, a stabilizing U.S. dollar and prospects of higher U.S. interest rates may ensure EM currencies remain depressed in the short to medium term”

‘A Penny Short’

Stephen Innes, head of Asia Pacific trading at Oanda Corp. in Singapore:

  • Argentina’s measures are “likely a day late and a penny short”
  • “These moves are a step in the right direction, but they’re unlikely to be convincing enough to remove currency speculators from the driver’s seat. I guess it’s all down the IMF’s ‘White Knight’ to the rescue. However, we are getting into the realm of unquantifiability which makes the market utterly untradable"

Most Vulnerable

Masakatsu Fukaya, an emerging-market currency trader at Mizuho Bank Ltd.:

  • Contagion risks from Argentina and Turkey are growing for other emerging markets and economies with weak fundamentals such as those with current-account deficits and high inflation rates
  • Currencies of countries such as Indonesia, India, Brazil and South Africa have been among most vulnerable
  • The Fed’s rate increases and trade frictions means the underlying pressure on emerging currencies is for a further downward move

To contact Bloomberg News staff for this story: Tomoko Yamazaki in Singapore at tyamazaki@bloomberg.net;Yumi Teso in Bangkok at yteso1@bloomberg.net;Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net, Dana El Baltaji

©2018 Bloomberg L.P.

Moves From Turkey and Argentina Fail to Reassure Nervous Investors
 

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