Emerging market currencies broadly strengthened yesterday but the Mexican peso touched its lowest in nearly two months on fears US President-elect Donald Trump’s policies will hurt the economy.
Emerging market equities held at three-week highs. The peso slipped as much as 0.3% against the dollar, its weakest since November 11, when it fell to a record low.
Mexico’s currency has been hit by signs that Trump’s threats to renegotiate NAFTA and punish US companies that move production outside the US might be more than mere bluster. On Tuesday, car maker Ford cancelled a planned $1.6bn factory in Mexico following harsh criticism from Trump, saying it will invest in a Michigan factory instead.
Trump also appointed Robert Lighthizer as US trade representative. Lighthizer helped to stem the tide of imports from Japan in the 1980s under President Ronald Reagan, with threats of quotas and punitive tariffs.
“He has been a strong proponent of more restrictive trade...that’s bad news for Mexico for sure,” said Per Hammarlund, chief emerging markets strategist at SEB, adding that Trump’s proposed commerce secretary, Wilbur Ross, was also a hawk.”It signals that Trump will take a very tough line when it comes to trade.”
The Turkish lira rose 0.5% against the dollar from record lows on Tuesday.
The lira has been pressured by higher-than-expected inflation and by security worries after a series of gun and bomb attacks.
Overnight, Turkey’s parliament voted to extend emergency rule by three months.
“The continuation of the state of emergency keeps a dampener on business sentiment, given that (President Tayyip) Erdogan can pretty much rule by decree,” said SEB’s Hammarlund.”The lira is very vulnerable right now.”
The benchmark emerging market equities index held steady at three-week highs, helped by a strong performance in Asia after a rally on Wall Street.
Investor sentiment was boosted by upbeat manufacturing surveys from China, the euro zone and the United States.
US factory activity rose to a two-year high as new orders surged.
Chinese mainland shares rose 0.8%, the Philippines index gained 2.5% and Thai stocks rose 1.3% to their highest since April 2015.
European stocks delivered a more mixed performance. Russian dollar-denominated stocks fell 1.7% — their steepest daily loss in nearly eight weeks — even though oil prices edged up after falling 2.4% on Tuesday.
South African stocks fell 1.2%, but the rand gained 1.4% against a weaker dollar, underpinned by a rally in precious metals.
The Chinese yuan also steadied, rising 0.2% after Chinese state banks stepped in to support it for a second day and the central bank set a stronger-than-expected daily trading midpoint.
But the Malaysian ringgit continued to suffer, briefly touching a 19-year low.
It is considered vulnerable to rises in US interest rates because of the high foreign ownership of Malaysian bonds.
The Institute for International Finance reported that emerging market portfolios recorded the lowest total inflows since 2008 in 2016 at $28bn, with debt portfolios suffering $33.8bn of outflows.
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