Rand steadies as dollar pauses rally, JSE firms

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Photo: Getty

Emerging market stocks extended a six-day selloff on Tuesday as global growth fears stoked by high inflation, tighter US monetary policy and a slowdown in China weighed on shares, while most regional currencies took a breather after a three-day slide.

MSCI's index of emerging market (EM) currencies firmed 0.1% as the dollar slightly weakened, while its stocks counterpart extended a selloff to a seventh straight day, shedding 0.6% and bringing its year-to-date losses to 18%.

However, the JSE's All-Share Index was almost one percent firmer, with HCI almost 5% higher and Shoprite gaining 4%. 

The currencies and stocks benchmarks plunged 0.5% and 1.6% respectively on Monday after the dollar scaled two-decade highs on concerns around aggressive US policy tightening. A stronger dollar makes high-yielding but riskier EM assets less attractive to investors.

"We think the stagflation threat will weigh on EM markets for longer than advanced economies," said Gabriel Sterne, head of strategy services and global EM research at Oxford Economics.

"Additionally, downside risks emanating from China are large and not fully factored in to market pricing," Sterne added.

Adding to fears, EM economic growth is set to slow "sharply" this quarter, pressured by China, Russia and the spread of tighter monetary conditions, JPMorgan analysts said.

Turkey's lira dropped 0.8%, tracking its fourth straight day in the red and bringing the currency back near lows it hit in December, 2021 when unorthodox monetary policies sent the lira into freefall.

Turkey's unemployment rate rose to 11.5% in March, while a seasonally adjusted measure of labour underutilisation increased 0.6 percentage points to 22.7%, data showed.

Meanwhile, boosting sentiment, China stocks rebounded after its central bank pledged support for the slowing economy a day after COVID-19 lockdowns spooked markets and fed worries about demand.

In another bright spot, the South African rand recouped some losses, rising 0.3% a day after domestic power cuts and a stronger greenback dragged the currency to its lowest level this year. The rand was last at R16.12/$, after falling to around R16.26 on Monday.

Government bonds also bounced, with the yield on the benchmark 2030 instrument last down 3.9 basis points at 10.16%.

Inflation woes intensified as Czech headline inflation was seen soaring to its highest in almost three decades in April while prices in Hungary also rose above forecast.

The forint and crown were about 0.5% stronger against the euro in early trade.

Elsewhere, Sri Lanka's shorter-dated sovereign dollar bonds slipped a day after protests over the government's handling of the economic crisis turned deadly, killing seven people and injuring more than 200

- Additional reporting by Fin24

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