Emerging economies dip over uncertainty in trade deal, Indian rupee lowers

Emerging-market shares and currencies fell on Tuesday, giving back some of Monday's surge after U.S. President Donald Trump said a U.S.-China trade deal is not a certainty, even though talks have made progress. MSCI's index of emerging-market stocks fell 0.3 per cent and was on course to break a six-day winning streak. Its currency index dipped as risk aversion kept developing-world currencies from capitalizing on a weaker dollar.

Trump said trade talks were making progress and negotiators were "very, very close" to a deal. But he added that a deal "could happen fairly soon, or it might not happen at all". Many trade issues remain between U.S. and China that can't be bridged quickly, Commerzbank analyst Hao Zhou said, noting that little progress has been made on critical issues, including forced technology transfer.

Monday's jump came after Trump confirmed he would push back the March deadline to raise tariffs on $200 billion worth of Chinese imports to 25 per cent from 10 per cent. Chinese blue chips closed down 1.2 per cent and the Shanghai Composite fell 0.7 per cent. Both indexes rose more than 5.5 per cent on Monday. The yuan was 0.2 per cent lower.

India's rupee ticked 0.3 per cent lower as border tensions with Pakistan flared up after Indian jets bombed a militant camp in Pakistani territory. The air strike comes after the Jaish-e-Mohammed claimed responsibility for an attack which killed at least 40 Indian police in Kashmir earlier this month. India blames Pakistan for harbouring the group, which Pakistan denies.

Indian stocks fell as much as 1.4 per cent, before making up some lost ground. "Markets are reacting to the tension on the border. These situations make markets nervous," said Deven Choksey, founder and director of KR Choksey Investment Managers.

South Africa's rand fell 0.4 per cent, while Russia's rouble tracked oil prices lower. Markets will look to U.S. Federal Reserve Chairman Jerome Powell's testimony later on Tuesday for hints on the Fed's interest rate policy, said Bianca Botes, an analyst with Peregrine Treasury in South Africa.

In emerging Europe, the forint gained against the euro before a Hungarian central bank meeting later in the day. Analysts polled by Reuters unanimously expected the bank to leave rates unchanged but possibly start raising them next month if core inflation continues to rise.