Upbeat data lifts China shares but trade nerves persist

Optimism about a US-China trade deal waned after a Beijing official said he had not heard of any recent telephone call between the two sides.

BENGALURU: A rally in Chinese equities steadied the emerging market stocks index on Tuesday after three sessions of losses, although most currencies softened as investors remained wary of a further escalation in the U.S.-China trade dispute.

MSCI's index of developing world stocks edged 0.15% higher as Shanghai-listed shares jumped more than 1% after data showed China's industrial firms returned to growth in July.

While hopes of fiscal stimulus continued to prop up Indian shares for a third day, most other stock markets were in the red as optimism about a U.S.-China trade deal waned after a Beijing official said he had not heard of any recent telephone call between the two sides.

The yuan plumbed to new 11-year lows in onshore trading even as China's central bank fixed its midpoint rate much above market expectations.

U.S. President Donald Trump's comment on Monday about China wanting to get back to the negotiating table had offered some relief to risk assets after both sides threatened to slap tariffs on each other's goods last week, heightening fears of a global slowdown.

However, doubts over a quick resolution crept in, sending most emerging currencies lower. The Turkish lira dropped 0.3% to its weakest level since June 19, continuing to slide after a "flash crash" hit the currency on Monday.

Russian President Vladimir Putin is set to meet Turkish President Recep Tayyip Erdogan in Moscow to discuss the situation in Syria's Idlib after the Kremlin said on Monday that attacks by militants there needed to be stamped out.

Russia's rouble also dropped 0.3% after the government lowered its economic growth and inflation projections for 2020, raising bets of a rate cut at the central bank meeting next week.

"The CBR (central bank) is dramatically behind the curve in terms of inflation forecasts and in easing cycle and therefore will have to catch up at some point," Credit Suisse analyst Alexey Pogorelov wrote in a note. "We believe the central bank will cut the policy rate by 50 bps, to 6.75%, on September 6."

The Hungarian forint edged higher against the euro ahead of a central bank meeting later in the day, where policymakers are widely expected to keep the main rate and overnight deposit rate unchanged, according to a Reuters poll.

A decline in local inflation and a dovish turn by global central banks may enable it to put off its next rate increase until after 2020. The forint has lost 2.4% this year, only faring worse than the Polish zloty among east European emerging currencies.

"The bank will probably wait until its next meeting on 24 September to review its stance on rates, i.e. when the new set of Hungarian inflation forecasts is released and the ECB will have unveiled its new monetary policy strategy," UniCredit strategists said in a note. - Reuters