May 7 (Reuters) - Most emerging market currencies held steady on Friday ahead of a key U.S. jobs report, while robust Chinese trade data, strong commodity prices and a tepid dollar supported currencies through the week and pushed stocks to their one-week high.
MSCI’s index of emerging market currencies gained 0.3% to a 11-week high and is 0.4% away from scaling an all-time peak. It is also on track for a fifth consecutive week of gains.
China extended its impressive trade performance in April as exports unexpectedly increased and import growth hit a decade high, while estimates the U.S. added nearly a million jobs in April helped support risk sentiment.
“Strong U.S. growth and rising headline inflation are already showing in the data and this sets up markets for a decision point and a source of EM volatility as we head through Q2 into Q3,” said Luis Oganes at JPMorgan in a note to clients.
“If talk of normalizing policy starts in June then this can dominate EM price action given the forecast of US data strength into Q3.”
The U.S. payrolls could boost risk appetite and weigh on the safe haven dollar, but inflation worries and expectations of a reduction in Federal Reserve’s stimulus could boost U.S. bond yields and the dollar.
MSCI’s index of emerging market stocks gained 0.3% to its one-week high but were set to drop for the second consecutive week led by a spike in coronavirus infections, inflationary pressures and fiscal uncertainty.
However, huge COVID-19 outbreaks in India, Brazil and Turkey have put developing economies at the epicentre of the pandemic, but their reluctance towards a full lockdown combined with hopes of vaccine progress globally appear to be desensitizing markets.
South Africa’s rand was subdued ahead of a scheduled review of its sovereign credit by Moody’s later in the day. The rating agency already assigns a “junk” status to the country, but with a negative outlook there is the potential for a further downgrade.
The Russian rouble firmed marginally in light trade on Friday, edging below the 74 mark versus the dollar for the first time in seven weeks, while the MOEX stock index surged to an all-time high ahead of its inflation data due later in the day.
Emerging market bond funds attracted inflows of $600 million in the week to Wednesday while developing equities enjoyed their first inflows in three weeks, adding $900 mln, BofA said in its flow analysis, citing EPFR data.
Reporting by Shashank Nayar in Bengaluru; Editing by Krishna Chandra Eluri