LONDON: Emerging equities rose to one-month highs on Monday after weak U.S. jobs growth reduced expectations of a Fed rate rise, whilst South African bond yields fell to multi-week lows after the country dodged a ratings downgrade.
Ratings agency S&P Global maintained South Africa's investment grade credit rating on Friday, bucking expectations of a downgrade to junk. That pushed South Africa's 10-year benchmark local bond yield to multi-week lows, whilst dollar bonds fell across the curve.
The rand extended gains against the dollar to touch its strongest level in three weeks after firming more than 3 percent on Friday. Five-year credit default swaps were steady at three-week lows of 297 basis points, according to Markit data.
"South Africa still has a lot of challenges and there is the Fitch rating decision to come this month, but they haven't been downgraded ... cyclically there is still room for the rand to do a bit better," said Dominic Bunning, emerging markets FX strategist at HSBC.
MSCI's emerging equity index was up almost 1 percent, extending Friday's 0.85 percent gains after U.S. non-farm payrolls showed the slowest jobs growth in more than five years. This has cooled expectations that the U.S. Federal Reserve will raise rates in the near term.
"The market is now saying June is not going to happen, July is possible but not that likely. That gives a bit more time for emerging markets," said Bunning.
Emerging Europe stocks opened stronger, with Russian dollar-denominated stocks up 1.5 percent, helped by crude futures above $50 a barrel. Prague shares also rose 0.9 percent and Turkish stocks were up 0.8 percent.
This followed decent gains in Asia, where Hong Kong rose 0.4 percent and Indonesia 0.7 percent. But Chinese mainland shares slipped 0.3 percent as investors awaited this week's May data for clues as to the health of the economy.
Emerging Asian currencies firmed, playing catch-up after the dollar's retreat on Friday to three-week lows but some European currencies gave up some of the gains they had enjoyed at the end of last week.
The Russian rouble softened around 0.2 percent after firming almost two percent on Friday, and the Turkish lira lost 0.3 percent after gaining 1.5 percent on Friday to hit its strongest level in a month.
The Hungarian forint however rose 0.2 percent against the euro to touch its strongest in a month, whilst the Polish zloty firmed 0.2 percent.
But Bunning was cautious on the zloty given concerns about a government plan to convert foreign currency mortgages at a cost to the Polish banks. "Generally that story will be negative for the zloty - it will be very challenging for the government to come up with a plan that works for the banks," he said.
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