EMERGING MARKETS-Stocks jump 2% as U.S. prevents debt default, Turkey cabinet appointments eyed

Emerging market stocks climbed on Friday and currencies gained against a softer dollar as investors cheered the passage of a bill to suspend the U.S. debt ceiling, while all eyes were on Turkey's new cabinet appointments due to be announced soon. MSCI's emerging markets stocks index rose 2.1% to the highest level in over a week and was eyeing its biggest one-day percentage gain in three months, with stocks in China providing a major boost.

Emerging market stocks climbed on Friday and currencies gained against a softer dollar as investors cheered the passage of a bill to suspend the U.S. debt ceiling, while all eyes were on Turkey's new cabinet appointments due to be announced soon.

MSCI's emerging markets stocks index rose 2.1% to the highest level in over a week and was eyeing its biggest one-day percentage gain in three months, with stocks in China providing a major boost. China's blue-chip CSI300 index rose 1.4%, while Hong Kong stocks jumped 4.0% on Friday, while the yuan bounced off six-month lows hit recently.

The U.S. Senate on Thursday passed legislation lifting the government's $31.4 trillion debt ceiling, averting a catastrophic default that would have hit global economic growth. The dollar retreated as traders rolled back expectations of a rate hike from the Federal Reserve in June following recent data highlighting weakness in the U.S. economy and after comments from Fed officials signalling a rate hike "skip" this month.

Broader EM currencies gained 0.5%, and were set to snap three straight weeks of losses, as the greenback eyed its biggest weekly loss since mid-January. Turkey's lira was last at 20.87 to the dollar, slightly weaker than the previous close but steadying from a record low hit on Wednesday.

Investors were keenly watching Turkish President Tayyip Erdogan's new cabinet appointments, which could be announced in the coming days. Reuters reported earlier this week that former economy chief Mehmet Simsek, known for his market-friendly policies, is almost certain to be included by Erdogan, who emerged victorious in Sunday's runoff vote. Bloomberg on Friday reported Erdogan will appoint Simsek as his new treasury and finance minister with the announcement likely on Saturday, citing sources with direct knowledge of the matter.

Simsek's appointment could hint at a likely shift to more orthodox monetary policy by Erdogan, but markets could still be uncertain in the near term, according to analysts. "The whispers from Istanbul are that he (Simsek) has prepared to accept the job. We can definitely expect some changes in a more orthodox direction from Turkish economic policy under Simsek," said Kieran Curtis, head of emerging market local currency debt at Abrdn.

"He would definitely not have accepted the job in order to keep things on the footing they've been on." Turkey's trade deficit widened 18.8% year-on-year to $12.66 billion in May, the Trade Ministry said on Friday, while its forex reserves have dropped to their lowest level on record.

South Africa's rand firmed 0.7% versus the dollar, extending gains from the previous session. For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX

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