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London - Emerging shares drifted to near three-year peaks on Wednesday ahead of an expected reaffirmation of the Federal Reserve's ultra-easy monetary policy, as investors betting on a hike in Russian interest rates chased a buoyant rouble higher.
Poland's zloty hovered at a two-month high to the euro, bolstered by stronger-than-forecast March retail sales data.
A cut in Standard & Poor's rating outlook for Japan on the huge impact of last month's earthquake failed to deflect investors' attention from Fed Chief Ben Bernanke, who is expected to confirm at news conference the US central bank's commitment to rock-bottom borrowing costs for "an extended period".
"The Fed is still on the dovish side, there are some members who have been more hawkish recently but the way is still open for more liquidity... We continue to see this pattern in emerging markets of being rather bullish with episodes of correction," said Societe Generale strategist Gaelle Blanchard.
The benchmark emerging equities index .MSCIEF rose 0.3% by 13:30 to new 2011 highs and its highest point since June 2008.
Emerging sovereign debt tightened 6 basis points to trade at 267 bps over US Treasuries, albeit in trade lightened by a short holiday week in London. Hungarian shares were up 0.7% to their highest in 6-1/2 weeks, though most other central and eastern European bourses were in the red with the Thomson Reuters Emerging Europe index weakening a touch.
"For emerging markets, inflation is the story - there is a vicious cycle with commodity prices going up," Blanchard said.
Rouble rise
The rouble was among the emerging currencies boosted by expectations of tighter monetary policy.
It hit a fresh 2-1/2 year high against the dollar, fuelled by signs that official concerns about inflation in the country are outweighing worries about the competitiveness of its exports. Deputy Economy Minister Andrei Klepach on Tuesday said the currency may add 16 percent by the end of the year against the greenback.
"In Russia, it is clear from recent comments that they are quite happy with rouble strength, we see more upside in the rouble, especially with the dollar being so weak," said SocGen's Blanchard.
Poland's zloty held its ground against the euro for a third session after figures showed March retail sales beating forecasts [ID:nWSF010253].
Serbia's dinar hit one-year highs as did Romania's leu, which weakened a touch after reaching a new 2011 high of 4.0710 against the common currency.
"Given the high rate of inflation and the still fragile domestic economy, the central bank is unlikely to intervene at these levels, opting to fight inflation via a stronger currency," said BNP Paribas in a note.
"However, the current account has recently started showing signs of improvement, implying that the bank will eventually have to balance export competitiveness with its battle against inflation," it added.
South African markets were closed for a holiday.
Poland's zloty hovered at a two-month high to the euro, bolstered by stronger-than-forecast March retail sales data.
A cut in Standard & Poor's rating outlook for Japan on the huge impact of last month's earthquake failed to deflect investors' attention from Fed Chief Ben Bernanke, who is expected to confirm at news conference the US central bank's commitment to rock-bottom borrowing costs for "an extended period".
"The Fed is still on the dovish side, there are some members who have been more hawkish recently but the way is still open for more liquidity... We continue to see this pattern in emerging markets of being rather bullish with episodes of correction," said Societe Generale strategist Gaelle Blanchard.
The benchmark emerging equities index .MSCIEF rose 0.3% by 13:30 to new 2011 highs and its highest point since June 2008.
Emerging sovereign debt tightened 6 basis points to trade at 267 bps over US Treasuries, albeit in trade lightened by a short holiday week in London. Hungarian shares were up 0.7% to their highest in 6-1/2 weeks, though most other central and eastern European bourses were in the red with the Thomson Reuters Emerging Europe index weakening a touch.
"For emerging markets, inflation is the story - there is a vicious cycle with commodity prices going up," Blanchard said.
Rouble rise
The rouble was among the emerging currencies boosted by expectations of tighter monetary policy.
It hit a fresh 2-1/2 year high against the dollar, fuelled by signs that official concerns about inflation in the country are outweighing worries about the competitiveness of its exports. Deputy Economy Minister Andrei Klepach on Tuesday said the currency may add 16 percent by the end of the year against the greenback.
"In Russia, it is clear from recent comments that they are quite happy with rouble strength, we see more upside in the rouble, especially with the dollar being so weak," said SocGen's Blanchard.
Poland's zloty held its ground against the euro for a third session after figures showed March retail sales beating forecasts [ID:nWSF010253].
Serbia's dinar hit one-year highs as did Romania's leu, which weakened a touch after reaching a new 2011 high of 4.0710 against the common currency.
"Given the high rate of inflation and the still fragile domestic economy, the central bank is unlikely to intervene at these levels, opting to fight inflation via a stronger currency," said BNP Paribas in a note.
"However, the current account has recently started showing signs of improvement, implying that the bank will eventually have to balance export competitiveness with its battle against inflation," it added.
South African markets were closed for a holiday.
