* MSCI EM Stocks index set to jump over 3% for the week
* Spiking COVID-19 cases keep currencies constrained
* South African rand set to outperform EMEA FX for the week
By Ambar Warrick
July 3 (Reuters) – Emerging market stocks rose on Friday and were set to end the week higher on upbeat data from China and the United States, while currencies lagged as growing coronavirus cases dampened optimism about a swift global economic recovery.
The MSCI’s index of developing world stocks rose 0.9% to its highest level since March 6, but still trading about 10% below a pre-pandemic peak.
The index was on track to add more than 3% for the week, driven by strong economic readings across the globe, with Chinese factory activity and U.S. payroll data being particular highlights.
However, a spike in U.S. COVID-19 infections on Thursday undercut risk appetite. Emerging market currencies bore a measure of this caution, given that recent monetary easing in the space has made them less attractive than stocks.
“Markets may be trading in consolidating patterns due to the ongoing battle between those who see a faster-than-previously-thought economic recovery and those who are concerned over a second round of restrictions due to the re-acceleration of global infections,” Charalambos Pissouros, senior market analyst at JFD Group, wrote in a note.
South African and Hungarian stocks led gains in the EMEA region. Turkish stocks traded sideways, while the lira edged lower after inflation in the country climbed more than expected in June.
Turkey’s central bank had cited increased inflation when it unexpectedly halted a policy easing cycle last week.
“If inflation were not to cool down, the FX market would switch to discounting a much more deeply negative real interest rate than it is doing now – and this would imply more selling pressure on the lira,” Tatha Ghose, FX & EM Analyst at Commerzbank, wrote in a note.
South Africa’s rand rose about 0.3%, and was set to outperform its EMEA peers for the week after the country recorded its first current account surplus in 17 years.
Russia’s rouble was steady to the dollar, while the Hungarian forint and the Czech koruna both edged lower to the euro.
For GRAPHIC on emerging market FX performance in 2020, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see tmsnrt.rs/2OusNdX
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