US Federal Reserve chief Janet Yellen’s circumspect tone on raising interest rates helped emerging stocks almost half a per cent higher yesterday while the naira firmed in forward markets on its third day as a floating currency.
While the Fed chair virtually ruled out a rate rise in July, lingering jitters over Britain’s vote today on European Union membership curbed markets’ exuberance even though most opinion polls now show the “Remain” camp in the lead.
MSCI’s emerging equity index rose for the fourth straight day to touch 12-day highs, taking their cue from firmer developed markets, a weaker dollar and a 1% jump in oil prices.
Focus remained on Nigeria where the currency has fallen by around a third after being released from its dollar peg on Monday.
There are some signs of stabilisation on forward markets with one-month non-deliverable forwards (NDF) indicating the naira around 290, not far off its spot rate and three-month NDFs quoting it as firm as 298 at one point.
Stocks have surged to eight-month highs on anticipation that foreign investors will return and sovereign dollar bonds are at multi-month highs.
Yvonne Mhango, Sub-Saharan Africa economist at Renaissance Capital in Johannesburg said the currency would likely weaken further, citing the fall in crude output to 30-year lows.”In terms of the fundamentals of the economy one of our biggest concerns along with the oil price is production, and it has been depressed to levels that we have not seen in a long time.
As long as this remains the issue, the currency will have a tendency to depreciate, at least until the situation is resolved,” Mhango said.
Meanwhile receding Brexit fears helped up eastern European assets, with the zloty and forint steadying after last week’s volatility.
Another beneficiary has been South Africa where the rand has firmed 6% in the past three sessions against the dollar though it was flat yesterday.
The country has a fairly high exposure to Britain via exports sectors such as tourism, wine and cars.
Benchmark South African bond yields meanwhile fell to two-month lows after data showing inflation easing in May from April and coming in below analysts’ forecasts.
The rouble and Russian stocks slipped after three days of gains.
Local traders noted that higher oil prices were being offset by worries over a potential Brexit which could hit commodity and crude markets by sparking flight to the dollar.