Emerging Markets Rally as U.S. Jobs Miss Puts Fed on Back Burnerby
Developing-nation currencies reverse decline for the week
U.S. employers added fewest jobs in almost six years
Emerging-market stocks rose to a one-month high and currencies wiped out a weekly decline after data showed U.S. employers added the fewest workers in almost six years, raising the likelihood of a delay to a Federal Reserve interest-rate increase.
The MSCI Emerging Markets Index rose for a second day, while currencies in South Africa, Colombia and Russia led a gauge of developing-nation exchange rates higher. Turkish bonds rallied as core inflation slowed more than expected, opening the way for more interest-rate cuts.
The addition of 38,000 workers, the fewest since September 2010, followed a 123,000 advance in April that was smaller than previously estimated, U.S. Labor Department data showed. That boosted the appeal of riskier assets by reducing the odds for Fed monetary tightening this summer. A rebound in commodity prices has also improved the fiscal position of countries from Russia to South Africa and Brazil that rely on exports.
“The very weak U.S. employment data is slightly positive for emerging-market equities in that it lowers the probability that the Fed will hike rates in the next few months,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP in London, who favors Indian, Korean and Mexican stocks.
Traders scaled back bets of a rate increase this month to 2 percent and in July to 26 percent, down from 22 percent and 55 percent a day earlier, according to Fed futures data compiled by Bloomberg.
The MSCI Emerging Markets Index rose 0.9 percent to 816.18, the highest closing level since May 3. Stocks on the gauge trade at 12 times projected 12-month earnings, compared with a multiple of 16.2 for the MSCI World Index.
All 10 industry groups advanced, led by a 1.6 percent gain in raw-material stocks. The Bloomberg Commodity Index jumped 0.5 percent to the highest level in six months.
The Borsa Istanbul 100 Index jumped 2.5 percent. Turkey is one of the most vulnerable countries to outflows related to higher U.S. interest rates because of its current-account deficit. Vale SA, the world’s largest iron ore producer, led gains in Brazil, rising 8.6 percent. It was the biggest contributor to a 1.5 percent gain in the Ibovespa equity gauge.
Polish copper producer KGHM Polska Miedz SA added 4.5 percent, helping boost the WIG20 Index 1.8 percent.
Samsung C&T Corp. jumped the most since November after saying it was considering splitting off businesses and not considering any merger with Samsung SDS Co., which fell to a record. China Longyuan Power led gainers among utility companies, rising 7.1 percent after Goldman Sachs said the company is a "preferred stock" in the alternative energy industry.
The MSCI Emerging Markets Currency Index increased 0.4 percent. It was little changed before the payrolls report.
South Africa’s rand led advances among peers, jumping 3.4 percent as the country’s credit rating was kept at investment grade by S&P Global Ratings. Colombia’s peso jumped 2.4 percent. Brazil’s real climbed 1.8 percent. The Turkish lira increased 1.6 percent.
The jobs report “is positive for some EM countries of course,” said Nathan Griffiths, a senior emerging-market equities manager who helps oversee $1.1 billion at NN Investment Partners in The Hague and is overweight Indian stocks. “The likes of Turkey are basically dependent on the availability of the dollar. If the dollar rises they have problems funding themselves and they import all commodities so there is no negative offset.”
The rally in Turkish bonds pushed 10-year yields down 25 basis points to 9.56 percent, bringing the decline this week to 43 basis points. Core inflation fell to 8.77 percent in May from 9.41 percent the previous month, a drop that gives encouragement the central bank can continue a cycle of interest-rate cuts that started in March.
The payrolls data also boosted bonds in Poland, Hungary and Russia. Brazil’s 10-year local-currency yields fell 21 basis points to 12.62 percent.