LONDON, June 18 (Reuters) - Emerging stocks fell to a 12-day low on Wednesday on concerns the U.S. Federal Reserve could strike a more hawkish tone later in the day, dampening interest in emerging market assets, while Argentinian debt insurance costs rose on default worries.
A stronger-than-expected reading for U.S. inflation on Tuesday raised expectations that the Fed could consider bringing forward the timing of an interest rate hike.
Emerging markets have been rallying in recent weeks as markets pushed back the expected timetable for higher U.S. rates.
“While the surprise rise in inflation is unlikely to alter today’s FOMC decision to keep the target rate on hold...the adjoining statement will likely fuel a sell-off in EM FX that accelerated after yesterday’s CPI release,” said SEB analysts in a client note.
Argentina’s five-year credit default swaps rose 38 basis points to highly distressed levels of 2,623 bps, according to Markit, their highest in more than four months, after a court ruling this week raised the spectre of default.
If a resolution is not found by June 30 to the battle with hedge funds who refused to take part in Argentina’s debt restructuring after its catastrophic 2001-2 default, the country would be barred from making coupon payments on the restructured bonds, pushing it into technical default.
“Little time is left for a negotiated solution that could avoid failure to pay the coupon/principal due at the end of June, (meaning) that the probability for a CDS trigger has risen,” said Deutsche analysts in a client note.
The MSCI emerging equities index fell 0.3 percent to its lowest in 12 days.
Russian stocks rose 0.5-1 percent after Russian President Vladimir Putin and his Ukrainian counterpart, Petro Poroshenko, discussed a possible ceasefire in eastern Ukraine.
South African stocks hit record highs and the rand rallied 0.4 percent after South Africa’s current account deficit unexpectedly narrowed to 4.5 percent of GDP in the first quarter.
The lira was hovering around seven-week lows as conflict in neighbouring Iraq continued to weigh.
Iraq’s 2028 dollar bond has fallen 7 cents in the past week, to 88 cents on the dollar.
The zloty was steady after rate-setters at Poland’s central bank signalled late on Tuesday they were prepared to carry on working with bank Governor Marek Belka despite a leaked recording of conversation in which he had used an expletive to describe them.
Emerging sovereign debt spreads steadied at 285 basis points over U.S. Treasuries.
Reflecting demand for high-yielding emerging market debt, Ecuador - which selectively defaulted on its debt in 2008 - returned to bond markets late on Tuesday with a $2 billion 10-year bond at a yield of 7.95 percent. It attracted $5 billion in orders.
For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see ) (Editing by Kim Coghill)