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Cape Town – The rand has taken a hit in late afternoon trade, after rallying to its firmest since December after the European Central Bank interest rate announcement.
By late afternoon trade the rand pushed the R15.40 level after testing R15.03 to the greenback after the ECB cut interest rates and expanded its quantitative-easing plan.
“No other emerging market is rallying as hard as the rand, so it feels like the rand is being used as proxy for other emerging market currencies,” according to TreasuryOne.
Emerging markets failed to hold on to gains spurred by the unprecedented expansion in European stimulus after Mario Draghi signaled the cycle of cuts to lending rates has ended.
The benchmark equities gauge pared its first advance in three days as markets in the United Arab Emirates, India and China fell.
Egyptian shares climbed the second-most in the world as the central bank took steps to ease a dollar shortage.
Brazil’s shares rose for the first time in three days and the nation’s Eurobonds jumped to a four-month high after prosecutors filed charges against a former president, fuelling bets a change in government is imminent.
European Central Bank President Draghi exceeded investors’ expectations by cutting all of the three main interest rates and increasing monthly asset purchases to a higher-than-expected $89bn.
While stocks and currencies extended gains after the announcements, strategists questioned the long-term benefits of the programme given China’s growth slowdown, the price of oil trading below the budget assumptions of some governments and currency volatility.
“A weaker euro means a stronger dollar, which is not a good thing for emerging markets,” said Maarten-Jan Bakkum, a senior strategist at NN Investment Partners in The Hague. “The outlook remains troubled because of weak growth momentum, sharp fiscal deterioration, large debt overhang and China’s financial system risk.”
Stocks
The MSCI Emerging Markets Index climbed 0.5% to 791.54 at 10:28 in New York, after rising as much as 0.9%. Stocks pared gains after Draghi, speaking after the stimulus decision, said the 25-member Governing Council doesn’t anticipate a need to reduce rates further.
Eight of the 10 industry subgroups rose, led by information-technology companies and raw-material producers. The gauge has increased 6.9% in March after four months of losses as crude oil rose above $40 a barrel and lower valuations attracted bargain hunters.
China’s stocks declined as traders suspected that state funds failed to prop up shares on Thursday. That meant support was missing for the world’s worst-performing market this year amid deteriorating economic data and disappointment over stimulus measures announced during annual policy meetings this week.
The Ibovespa gained 1.1% in Sao Paulo. The EGX30 Index advanced for a sixth day to an almost two-month high in Cairo. The central bank removed caps on foreign-currency withdrawals and deposits for individuals and for importers of basic goods.
Currencies
Twenty one of the 24 emerging-market currencies tracked by Bloomberg weakened against the euro after initially rallying against the shared currency. Hungary’s forint fell 0.5%. The central bank may lower the benchmark rate this year and is ready to deploy all measures to combat "significant risks" to reaching its inflation target, Deputy Governor Marton Nagy said.
Brazil’s real strengthened 0.4% against the dollar. Prosecutors accused Luiz Inacio Lula da Silva of hiding assets from authorities, a move traders interpreted as tightening the noose around Dilma Rousseff’s presidency. His detention last week led to a rally in Brazilian stocks as investors wagered a change of government might usher in market-friendly policies.
A measure of 20 developing-nation exchange rates against the dollar advanced 0.3% to the highest level in three months. The won appreciated 1.1% after the Bank of Korea kept its benchmark rate at a record low.
Bonds
Polish government bonds rose, sending 10-year yields down four basis points to 2.87%. Any decision by the ECB today to boost stimulus is set to make Poland a magnet for investors seeking a haven from negative interest rates, Deutsche Bank AG to Rabobank International said.
The yield on Czech five-year notes fell to minus 0.2% for the first time. Emerging-market local-currency debt returned 1.6 percent so far this month, compared with a 0.6% loss in euro-zone bonds, Bloomberg indexes show.
The premium investors demand to own emerging-market sovereign debt over US Treasuries narrowed four basis points to 419, according to JPMorgan Chase & Co indexes.
