Currencies weaken, stocks subdued in light holiday trading

A strong dollar, rising oil prices and US Treasury yields holding on to recent gains put pressure on emerging markets on Monday, with currencies falling and stocks subdued.

MSCI’s index for developing-world currencies extended losses. The dollar gained after stronger-than-expected US jobs and manufacturing reports on Friday, although a dovish outlook from the Federal Reserve was still holding it down.

MSCI’s index for emerging market stocks was down 0.2%, led by losses in South Africa and India. China and South Korea were shut for the Lunar New Year holiday; Hong Kong shares rose on a half-trading day.

India’s rupee fell to eight-week lows as oil prices rose to 2019 highs on OPEC-led supply cuts and US sanctions against Venezuela.

A central bank meeting later in the week was expected to leave Indian interest rates unchanged. Economists had predicted rates would start rising next quarter, but that changed after Governor Urjit Patel’s sudden resignation from the Reserve Bank of India and his replacement by Shaktikanta Das.

“This will be the first RBI meeting under Das, who being a former government official, will be cognisant of any political pressure to ease,” Mitul Kotecha, senior emerging markets strategist at TD Securities, said in a note.

“While there is a non-insignificant risk of a rate cut under the new governor, we think it may be premature for RBI to ease at this time,” he said.

Turkey’s lira slipped 0.2% after data showed annual inflation crept up to 20.35% in January. Poor weather drove food prices higher and kept up the pressure for tight monetary policy.

South Africa‘s rand slipped further away from six-month highs as investors took profits from the previous week’s rally.

Russia’s rouble fell, under pressure from foreign currency purchases by the central bank, but the MOEX index in Moscow was among the few stock markets charting gains. Energy shares gained as oil prices rose.

In emerging Europe, Romania’s leu slipped lower after data showed producer prices for December 2018 were lower than expected.