Emerging Markets Climb as U.S. Jobs Data Eases Fed-Rate Anxiety

  • Rate-increase probablity falls as Fed’s room for move narrows
  • Russian ruble strengthens as Brent crude ends four-day decline

Morning Meeting: Will the EM Rally Continue?

Emerging-market currencies rose from the lowest levels in a month and stocks rallied as data showing slower-than-forecast U.S. employment growth reduced the odds that the Federal Reserve will move quickly to raise interest rates, propping up demand for riskier assets.

An MSCI Inc. index of developing-nation exchange rates rose 0.3 percent, ending a four-day losing streak. The equity benchmark increased 1 percent to 899.61. The rebound came as a report showed U.S. companies hired about 29,000 fewer workers last month than economists had estimated. The ruble strengthened the most among currencies as oil, Russia’s biggest export, rose for the first time this week. Commodity exporters including Vale SA led the Ibovespa to a two-year high in Sao Paulo.

Futures traders trimmed the odds of a Fed rate increase at this month’s meeting or the following one in November as the U.S. employment data stoked risk appetite. Emerging-market stocks and currencies retreated earlier in the week as hawkish comments by Fed officials including by Chair Janet Yellen in Wyoming on Aug. 26 had signaled to investors that a good job number today would embolden the central bank to raise borrowing costs in 2016.

“They had been selling off following Yellen’s Jackson Hole speech, but the relatively weak non-farm payrolls prompted investors to rush back in,” said Per Hammarlund, chief emerging-market strategist at SEB SA in Stockholm. “The downside surprise was not big, so uncertainty will reign over what the Fed will do to the Federal Funds rate in September.

All 10 industry groups in the MSCI Emerging Markets Index gained Friday, led by consumer and raw-material stocks. Brent crude rallied 3 percent to $46.83 in London, while the Bloomberg Commodity Index increased for the first time in eight days, advancing 1.1 percent.

South Africa’s rand strengthened against the dollar for a second day, rising 0.7 percent. The gains come after the longest stretch of losses in three years amid a political crisis that threatened to push the country toward a credit-rating downgrade and undermine central-bank independence.

The ruble gained 1.3 percent. The real strengthened 0.2 percent after data showed Brazil’s industrial output expanded for a fifth consecutive month in July as industry confidence grew on hopes that lawmakers will approve structural reforms proposed by the government of Michel Temer.

Russian government bonds posted a sixth week of gains as slowing inflation renewed bets for monetary easing. The yield on local-currency notes due February 2027 fell four basis points to 8.18 percent Friday, pushing the five-day decline to nine basis points.

Brazil, Russia

The premium investors demand to own emerging-market debt rather than U.S. Treasuries narrowed four basis points to 338, according to JPMorgan Chase & Co. indexes.

The Ibovespa gained 2.4 percent. Petroleo Brasileiro SA, the state-controlled oil company, led the Brazilian benchmark’s advance, rising 4.4 percent. Vale, the world’s biggest iron-ore producer, jumped 4 percent.

The dollar-denominated RTS Index of Russian stocks rose 2.6 percent, the biggest increase since June. The FTSE/JSE Africa All Share Index in Johannesburg added 1.7 percent. The Borsa Istanbul 100 Index climbed 1.4 percent, rebounding from a three day loss.

Benchmark equity indexes in China, India and South Korea, where trading had closed before the release of the U.S. jobs data, each rose at least 0.1 percent.

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