EM stocks end 6-day winning run, lira jumps on ceasefire deal

Emerging market stocks ended a six-day winning streak on Friday as dismal data from China reinforced worries over global growth, though the lira jumped sharply after Turkey agreed a ceasefire deal in Syria that could stave off further US sanctions.

MSCI’s index of emerging market shares fell 0.1%, putting it on course to end its longest upwards run since April, as data showed that the bruising US-China trade war pushed the economic growth in China to its weakest pace in nearly 30 years.

Stocks in mainland China fell more than 1%, and most other Asian shares were also in the red. Commodity-rich South Africa, which exports heavily to China, saw its shares give up 0.1%, while the Russian index was steady.

A glimmer of light however was provided by growth in industrial production and retail sales in China. These being more current indicators, could be a sign things are starting to get better, and saw ING analysts raising its forecast for fourth-quarter growth in a note to clients.

While most Asian currencies made no big moves against a steady dollar, the Russian rouble gained 0.3% to hover near three-week highs.

South Africa’s rand firmed 0.6% after the cabinet approved a long-delayed plan for electricity generation until 2030. The plan still needs to be publicly gazetted.

The currency had slumped this week when state power utility Eskom had resorted again to nationwide power cuts. The power outages in February and March had pushed South Africa’s first-quarter economic growth into contraction and threatened the country’s last investment-grade rating.

“Any plan they’ve got from Eskom has to be credible, has to be implemented quickly,” said Simon Harvey FX market analyst with Monex Europe, pinning an impending Moody’s review in November as the reason for urgency. “It has to be so fiscally sound to reverse the negative sentiment we see especially from foreign investors.”

Turkish relief

Turkey agreed on Thursday to pause its offensive in Syria for five days to let Kurdish forces withdraw from a “safe zone” Ankara had sought to capture.

The lira jumped up to 1.4% in a third day of gains that have seen it claw back around half of the 5% they had lost since the start of October pressured by US sanctions and threat of more.

Istanbul-listed stocks jumped nearly 4% erasing nearly all of Monday’s 5% loss, putting it on course to end the week around 0.7% lower.

US Vice President Mike Pence said no additional sanctions would be imposed during the ceasefire, although some US senators said they would press ahead with legislation to impose sanctions. Pence said the existing sanctions would be lifted once the ceasefire became permanent.

“Given (President Tayyip) Erdogan has increased his 2020 growth projections, the threat of US sanctions is pivotal to his political capital,” Monex’s Harvey said.

“If the US decides to impose sanctions … then we can start talking about political unrest in Turkey: the lira is going to sell off, we’re going to have capital controls again,” he said adding that potentially this ceasefire can be a lot deeper than what has been announced.

Central and Eastern European currencies largely gained, albeit marginally against the euro, extending a rally from the last session when Britain and the European Union clinched a deal for an orderly British exit from the bloc.

The deal still needs to be passed by parliament and faces opposition from the Northern Ireland democratic party.

Heading into the weekend, investors will be bracing for a slew of monetary policy meetings next week, including Turkey, Russia, Hungary among others.