EMERGING MARKETS-EM currencies at one-week low as Treasury yields jump; Turkish stocks rebound

By Utkarsh Hathi

Oct 1 (Reuters) - Emerging-market currencies slipped to a one-week low on Thursday as surging US Treasury yields lifted the dollar to a three-month high, while Turkish equities rebounded after recording their steepest monthly loss since 2008 in September.

China suspended oil products exports, lifting oil prices and adding to a global bond rout that has sent the US 10-year Treasury yield — a yardstick for global borrowing costs and asset prices — rising to 5.34%, its highest since 2002.

Higher yields and a stronger dollar tend to draw capital toward US assets, reducing the appeal of riskier emerging-market investments.

“We expect the weakness in emerging-market currencies to continue. Although we do expect US interest rate hike expectations to eventually fall, the tightening of financial conditions will keep the pressure on EM FX in the near term,” said Elias Hilmer, markets economist at Capital Economics.

MSCI's index tracking EM currencies .MIEM00000CUS dipped 0.43%, and looked set to start the quarter on a weaker footing after strong gains in the previous quarter, while the stocks equivalent .MSCIEF gained 0.17%.

Turkish stocks .XU100 rose 1.2%, rebounding after their steepest monthly drop since 2008 in September, when a crisis in the investment fund industry hit the market. Turkey's Capital Markets Board (SPK) decided to make interim payments to investors of liquidated investment funds over their net investment amounts.

"Markets in Turkey are very vulnerable to shifts in investor sentiment. And the risks are skewed towards looser policy and faster growth than we are currently projecting, particularly if early elections are called," said Hilmer.

The Turkish lira was little changed against the dollar.

Investors also digested fresh data on business activity in emerging Europe. Turkey's manufacturing Purchasing Managers Index fell further in September, reflecting softer demand.

A manufacturing downturn in Poland eased and employment fell at slower rates, while Hungary's PMI rose in September, signalling a faster expansion of the manufacturing industry.

Most currencies in the region weakened against the euro, with the Hungarian forint down 0.5%.

The forint has outperformed its peers this year as investors welcomed the victory of Péter Magyar's pro-European Tisza Party in April, viewing it as more likely to repair relations with Brussels and implement governance reforms.

However, Hilmer said much of the good news is already priced in and they do not expect the forint to appreciate over the medium term.

The Polish zloty and Romania's leu slipped 0.2% and 0.1%, respectively.

Most equities in the region were under pressure, with Poland's benchmark index .WIG falling 1.3% to a two-week low, while Hungarian stocks .BUX fell 1.1% to a two-month low.

In South Africa, the rand weakened 1% to a two-month low, while stocks .JTOPI dipped 0.3%. Manufacturing sentiment improved in September after three months of contraction, data showed on Thursday.

Asian assets were mixed, with tech-heavy South Korean .KS11 and Taiwanese .TWII benchmarks gaining 2% and 0.9%, respectively, after memory-chip maker Micron Technology MU.O forecast quarterly revenue above estimates.

The Korean won and Indonesian rupiah led losses among the region's currencies, down 0.6% and 0.4%, respectively.

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