Crude’s Slide Weighs on Emerging Currencies Before OPEC Meeting

  • Russian bonds fall after government auction misses goal
  • China’s yuan draws close to five-year low reached in January

Developing-nation currencies from the Colombian peso to Russia’s ruble weakened and energy stocks slid for a second day as oil prices dropped before OPEC’s meeting this week.

The MSCI Emerging Markets Currency Index ended the session little changed after falling as much as 0.2 percent. Colombia’s peso fell to a two-month low after the central bank scrapped its foreign-exchange intervention mechanism last week. The ruble slid 0.4 percent, paring this year’s gain to 9.9 percent. Mexico’s peso and the Malaysian ringgit dropped 0.4 percent. A gauge of developing-nation energy stocks fell to a one-week low.

Oil prices have fallen amid concern the rally that sent them up almost twofold from 12-year lows earlier this year isn’t sustainable. The Organization of Petroleum Exporting Countries, meeting Thursday in Vienna, will probably stick to its policy of squeezing out rivals by maintaining production as the price rally helps justify the group’s strategy, according to analysts surveyed by Bloomberg.

“This week, the main thing to focus on is tomorrow’s OPEC meeting,” said Simon Quijano-Evans, chief emerging-market strategist at Commerzbank AG in London, who recommends buying debt of commodity producers such as Russia and Indonesia. “There is some profit-taking ahead of the meeting, which will probably be a continuation of the status quo.”

Ruble, Rupee

Investors are also trying gauge whether the world’s two-largest economies -- the U.S. and China -- are strong enough to weather an imminent increase in interest rates by the Federal Reserve. A recovery in developing-nation assets in March and April was snuffed out last month as Fed officials signaled they may move as soon as this month.

The Indian rupee weakened 0.3 percent, according to prices from local banks compiled by Bloomberg. Central bank Governor Raghuram Rajan has told the government he doesn’t want to continue in that role after his term ends in early September, Bengali-language newspaper Anandabazar Patrika reported on Wednesday, citing unidentified sources close to Rajan. Prime Minister Narendra Modi wants him to stay on, the newspaper reported.

China Manufacturing

The yuan fell less than 0.1 percent to 6.5800 per dollar, about 0.2 percent away from its five-year low in January, when concern about China’s currency policy roiled global financial markets. Manufacturing gauges released Wednesday showed activity remained subdued in May, after April economic data trailed estimates.

The MSCI Emerging Markets Index slipped less than 0.1 percent. Declines in energy stocks and utilities offset gains in telecom and technology shares.

The Micex Index declined 0.3 percent in Moscow. Benchmark gauges in Poland and Turkey each fell at least 1 percent. The Ibovespa rose 1.1 percent in Sao Paulo, ending a three-day streak of declines.

China’s Shanghai Composite Index was little changed after surging 3.3 percent on Tuesday on speculation the nation’s shares will be included in MSCI Inc.’s global indexes. China’s manufacturing purchasing managers index was 50.1 in May, the statistics agency said, above the median estimate of 50 in a Bloomberg survey. Readings higher than that level indicate improving conditions.

Yield Spread

The reading “wasn’t bad and of course a lot of emerging countries are relying on China doing well,” said Andrew Sullivan, managing director for sales trading at Haitong International Securities Group in Hong Kong.

The yield on South Korea’s three-year notes fell the most this year, dropping six basis points to 1.45 percent. The government said exports shrank for a 17th month in May, fueling speculation the central bank will reduce interest rates for the first time in a year.

Russia’s bonds fell, sending the 10-year yield up 10 basis points to 8.99 percent. The Finance Ministry sold less than half of the 25 billion rubles ($372 million) of bonds it offered in auctions on Wednesday.

The premium investors demand to own emerging-market debt over U.S. Treasuries decreased two basis points to 395, according to JPMorgan Chase & Co. indexes.

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