EMERGING MARKETS-Russia lags EMEA on weak oil prices; Turkey's lira rises

Russian stocks and currencies were laggards in Europe, the Middle East and Africa (EMEA) on Tuesday due to weak oil prices, while most other regional markets gained on the back of improving U.S. economic data. The rouble fell about 1% to the dollar, while stocks were weighed down by losses in major energy firms.

Oil prices retreated amid concerns that a fresh wave of COVID-19 infections will see a global demand recovery stalling due to tighter lockdowns. However, positive U.S. manufacturing data helped lift broader sentiment, with markets also keeping a close watch on talks over fresh stimulus measures in the world's largest economy.

The Turkish lira rose as much as 0.7% to the dollar, as the interest rate on the currency's overnight swap transactions in the London market surged to 520%. Turkish banks have previously cut funding to the London swap market, effectively making it impossible to short the lira in order to curb falls in the currency.

"State banks have been reportedly intervening on behalf of the central bank, trying to slow down the pace of lira depreciation," said Piotr Matys, Emerging Markets FX Strategist at Rabobank. "Such a move is the indication of the ongoing negative sentiment against the lira."

Data showed Turkey's July manufacturing activity grew at its fastest pace in nine years, while moderating consumer price inflation in the country pointed to more economic stability. However, analysts were sceptical that inflation could remain fettered. Central European currencies such as the Hungarian forint and the Polish zloty moved in a flat-to-high range against the euro.

Polish manufacturing recovered in July after the easing of coronavirus-led restrictions, a survey showed on Monday, but Hungary posted a more modest improvement and the Czech Republic did not return to growth. Emerging market risk assets had marked strong gains in July, amid improving economic data and hopes for a coronavirus vaccine. But they are yet to reach pre-pandemic levels.

In Latin America, Argentina said it had reached a deal with three creditor groups to restructure $65 billion in sovereign debt, which would help it climb out of a damaging default and revive an economy stuck in recession for over two years. For GRAPHIC on emerging market FX performance in 2020, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see https://tmsnrt.rs/2OusNdX

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