Trade talks, hopes for rate cuts boost EM stocks

Emerging-market stocks rallied for a third straight day and currencies gained on Thursday, amid signs of progress in US-China trade talks and signals by major central banks that they will soon loosen monetary policy.

The MSCI index of developing-world stocks jumped 1.3% to its highest since early May. China’s blue-chip index and Shanghai Composite index closed at eight-week highs.

Hong Kong-listed stocks were up over 1%. Indian, , Russia,, South African and Turkish shares also rose.

The gains came on news that Beijing and Washington officials would resume negotiations after talks broke down last month.

An index of emerging-market currencies surged about 0.9%, on track for its biggest one-day percentage gain since December 2017, as the US dollar weakened after the Federal Reserve joined the European Central Bank in signalling it was likely to ease its monetary policy.

“The EM market reaction to dovish Fed and ECB appears to be apparent: lower local yields and technical rebound in local currencies, although we believe local currency appreciation would be a transient knee-jerk reaction,” Societe Generale analyst Marek Drimal wrote in a note.

Investors are betting the Fed will cut interest rates as early as next month and at least once more in 2019. Capital has flowed into emerging-market assets this month on expectations rates will fall worldwide, after trade worries drove a selloff in May.

The Indonesian rupiah jumped 0.7% after its central bank said it was monitoring global financial conditions to assess room for a rate cut, but left key interest rates unchanged.

Brazil’s central bank also kept borrowing costs at a record low on Wednesday, as expected, but held back from signalling looser policy because of doubts on economic reforms.

The Thai baht and the South Korean won were the biggest movers, gaining more than 0.9% each.

The South African rand rose 0.6% to a five-week high before President Cyril Ramaphosa’s state of the nation address later in the day.

Read: Five things to watch in President Ramaphosa’s Sona

Mexico’s peso edged higher after the country became the first to ratify the United States-Mexico-Canada Agreement agreed late last year.

Emerging-market dollar bonds also rallied, with Russia’s 2047 dollar bond rising 2.9 cents in the dollar to a record high, according to Tradeweb data.

South Africa‘s 2044 dollar bond added 3 cents in the dollar, reaching its highest point since January 2018.