Emerging market reaction to nonfarm payrolls
Friday's weak U.S. jobs numbers failed to calm concerns about emerging market currencies, with analysts warning the data was not enough to overcome ongoing volatility.
U.S. nonfarm payrolls totaled 113,000 in January -- significantly below the 185,000 expected by economists – dashing hopes of a steady economic recovery. However, the figures were enough to help lower the unemployment rate from 6.7 percent to 6.6 percent.
At first emerging markets seemed to cheer the news – with currencies including the South African rand, Mexican Peso and Turkey's lira strengthening against the dollar. Shortly afterwards, however, some of the gains were reversed.
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The jobs data should temper any expectations that the U.S. Federal Reserve will accelerate the pace at which it winds down its monetary stimulus, according to Benoit Anne, head of global emerging market strategy at Societe Generale. The American central bank is in the process of tapering off its quantitative easing program.
Since 2009, the Fed's bond-buying program helped boost risk sentiment and flooded the financial markets with extra funds – all of which increased appetite in emerging market currencies. Any accelerated "tapering" by the Fed will dissuade investors from sticking with their foreign currency holdings.
"There is no doubt the nonfarm payrolls is something of a relief for emerging markets," Anne told CNBC. "But despite this I am not getting overly excited."
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The nonfarm figures cap a difficult couple of weeks for emerging markets, which have experienced significant volatility amid ongoing concerns about some countries' fundamentals and the speed of Fed tapering.
"While the weak data is something of a mixed bag for emerging market currencies, the backdrop of a gradual withdrawal of U.S. monetary stimulus remains in place," Nicholas Spiro, managing director of Spiro Sovereign Strategy, told CNBC.
"The weak and confusing U.S. jobs report injects yet more volatility and uncertainty into an already turbulent EM (emerging market) financial landscape."
Demetrios Efstathiou, head of CEEMEA strategy at Standard Bank, agreed.
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"I'm not quite sure that the number is accurately reflecting the state of the economy, given that unemployment has dropped and labor participation increased," he told CNBC.
This - combined with the fact that emerging market currencies had already experienced a significant selloff – was supportive of some stability in the region's forex market, he added.