Emerging Currencies Rise on Fed Outlook as Chinese Stocks Rally

Emerging-market currencies rose for the second time in three days and stocks gained as weaker-than-forecast U.S. economic data spurred that speculation the Federal Reserve won’t be forced to raise U.S. interest rates soon.

A gauge tracking 20 currencies advanced 0.3 percent as the lira and rand climbed from record lows and Brazil’s real strengthened from its weakest level in 12 years. The Shanghai Composite Index surged to a five-year high after Premier Li Keqiang pledged to act if economic growth slows too much. Shares in Turkey, a net oil importer, rallied 2 percent as crude fell to a six-year low. OAO Gazprom lost 1.5 percent in Moscow.

Emerging-market assets advanced after data showed an index of manufacturing in the New York region unexpectedly fell, while factory production declined for a third month. The Fed may remove the word “patient” from its statement this week, giving it more flexibility on the timing of rate changes, according to analysts at banks including Morgan Stanley and BNP Paribas SA.

“We had a massive rally in the dollar last week so it wouldn’t be a big surprise to see a bit of profit-taking,” Anders Svendsen, an analyst at Nordea Bank AB in Copenhagen, said by phone. “People are afraid of the Fed removing the ‘patient’ phrase from their statement. There will be some stability until we get some fresh air from the Fed.”

U.S. Rates

Prospects for the Fed will start raising rates sooner helped send emerging-market stocks down the most in three months last week, while currencies slumped to records.

The MSCI Emerging Markets Index gained 0.1 percent to 940.44 after reversing a decline of as much as 0.2 percent. While a measure tracking energy companies fell to a three-month low, health care and consumer stocks gained.

The emerging-markets index has fallen 1.7 percent this year and trades at 11.5 times projected 12-month earnings. That compares with a multiple of 16.5 for the MSCI World Index, which has gained 1.8 percent in 2015.

Concern that record U.S. supply may start to strain the country’s storage capacity pushed crude to the lowest since November 2009. While West Texas Intermediate contracts fell to a six-year low of $43.88 a barrel, Brent dropped 2.2 percent to $53.44, the lowest settlement price since Jan. 30.

Turkish Shares

Declining oil prices are helping Turkey narrow its current-account deficit, which fell more than forecast in January. The nation’s central bank will probably keep benchmark borrowing costs unchanged at 7.5 percent on Tuesday, according to 15 of 19 analysts in a Bloomberg survey.

The Borsa Istanbul 100 Index led gains in emerging Europe after the measure slumped to the lowest since October 2014 on Friday. The lira advanced 0.6 percent to 2.6251 per dollar.

A meeting between central bank Governor Erdem Basci and President Recep Tayyip Erdogan last week spurred optimism the government will tone down calls for deeper rate cuts, easing investor concern the monetary authority’s independence was under threat.

The Bloomberg GCC 200 Index of equities in the world’s biggest oil-exporting region retreated 1.9 percent, the most since Jan. 5. Shares in Russia and Saudi Arabia, which count the commodity as their top export earner, lost at least 1.1 percent. Dubai’s DFM General Index closed at its lowest level since Jan. 6.

Brazil, China

The premium investors demand to own emerging-market debt over U.S. Treasuries widened four basis points to 376 basis points, according to JPMorgan Chase & Co. indexes.

Brazil’s real strengthened 0.8 percent to 3.2223 per dollar and the Ibovespa gained 0.5 percent. The government pledged to submit corruption legislation after more than 1 million people took to the nation’s streets Sunday.

Li said Sunday the government will take additional steps if China’s growth, which the government targeted at 7 percent this year, drifts toward the lower limit of its range and cuts into employment or wages.

His comments helped boost the Shanghai Composite Index 2.3 percent to the highest close since August 2009. The Hang Seng China Enterprises Index of mainland shares listed in Hong Kong increased for a third day, adding 0.9 percent.

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