EM equities set for biggest drop in over a month as Treasury yields rise
Asian bourses pull EM stocks lower
South Africa heads to polls, stocks closed
Polish flash CPI below estimates in May
By Sruthi Shankar
May 29 (Reuters) -Emerging market (EM) equities were on track for their biggest percentage drop in more than a month on Wednesday, and currencies slipped, as U.S. Treasury yields climbed on concerns that the Federal Reserve will hold interest rates higher for longer.
The MSCI index of EM stocks .MSCIEF dropped 1.3%, set for its biggest daily loss since April 19, with markets in Hong Kong .HSI, South Korea .KS11 and Taiwan .TWII among the biggest losers.
U.S. Treasury yields touched multi-week highs on Tuesday, after lacklustre debt auctions and stronger-than-expected economic data dimmed hopes for U.S. rate cuts this year. US/
The yield on 10-year Treasury notes US10YT=RR, a benchmark for global borrowing costs, traded on Wednesday at a near four-week high, in turn hurting risky emerging markets assets and global stocks.
"We've seen quite a strong rally in EM currencies in last like three or four weeks. So at the moment, they are quite sensitive and maybe a little bit overbought," said Frantisek Taborsky, EMEA FX&FI strategist at ING.
The South African rand ZAR= edged up to a one-week high of 18.26 per dollar, while stock markets were closed on account of the national election.
Opinion polls suggest the African National Congress (ANC) will lose its parliamentary majority after 30 years in government and is likely to make a deal with one or more smaller parties.
The Polish zloty EURPLN= slipped against the euro after a flash reading of consumer prices rose by a smaller-than-expected 2.50% on a year-on-year basis in May. Economists were expecting a rise of 2.80%.
However, Polish central banker Henryk Wnorowski said the likelihood that the Monetary Policy Council (MPC) will discuss rate cuts this year is getting lower.
Other eastern European currencies including the Hungarian forint EURHUF= and Czech crown EURCZK= slipped against the euro. FRX/
The euro however dipped against the dollar after data showed inflation in three German states inched up in May, suggesting that national inflation may rise slightly although the picture was mixed with a lower rate in one state.
Traders are pegging a 91% chance that the European Central Bank will cut interest rates next week.
"There was quite a big rally in the euro versus dollar, which helped general sentiment in the CEE space. The question is how much more support we can get, but in general the ECB story is positive for CEE currencies," said ING's Frantisek.
HIGHLIGHTS:
** AfDB aims to boost infrastructure funding as African growth accelerates
** IMF upgrades China's 2024, 2025 GDP growth forecasts but warns of risks ahead
** S&P revises outlook on India's sovereign rating to positive from stable
For TOP NEWS across emerging markets nTOPEMRG
For CENTRAL EUROPE market report, see CEE/
For TURKISH market report, see .IS
For RUSSIAN market report, see RU/RUB
For GRAPHIC on emerging market FX performance in 2024 http://tmsnrt.rs/2egbfVh
For GRAPHIC on MSCI emerging index performance in 2024 https://tmsnrt.rs/2OusNdX
Reporting by Sruthi Shankar in Bengaluru; Editing by David Holmes
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