Emerging-market rally seen unstoppable as traders turn to Powell

There’s so much positive momentum in risk assets, it’s difficult to see what could stand in the way of the emerging market (EM) rally, at least in the coming days.

The stronger-than-forecast May US jobs report and weekend agreement by Opec+ to a one-month extension of its record output cuts may add to the optimism about the prospects for a global economic recovery, underpinning risk assets. JPMorgan’s measure of implied volatility for EM currencies had its biggest weekly drop since 2011. 

 

“While there are still significant uncertainties over the Covid-19 impact on corporate earnings, investors are encouraged by the reopening of economies that is likely to lead to a rebound in profitability later this year,” said Iyad Abu Hweij, a managing partner at Allied Investment Partners PJSC in Dubai. 

While the Federal Reserve is forecast to hold interest rates near zero when policy makers meet Wednesday, investors will be watching for clues on further stimulus in Chairman Jerome Powell’s remarks. Technical indicators suggest the prospects for developing-nation assets look promising as the dollar wobbles. MSCI’s gauge of emerging-market currencies broke above its 100-week moving average on Friday, heralding further gains.