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Emerging market shares rose on Friday while currencies remained under pressure against a backdrop of uncertainty surrounding Brexit, in what has been a largely positive week driven by lower oil prices and cautious trade optimism.

The broader index for emerging markets was on track for a 0.7 percent weekly gain with shares in Turkey and South Africa gaining nearly 1 percent each on the day.

A possible easing of Sino-U.S. trade tensions boosted emerging shares although investors remained cautious about an actual agreement.

While China sent a written response to U.S. demands for trade reforms, Washington said this was unlikely to prompt a breakthrough at talks between Presidents Donald Trump and Xi Jinping later this month.

“We are of the view the summit will not lead to a trade agreement between the two countries, rollback of existing tariffs, or even a commitment to not implement further tariffs,” said Citigroup in a note. “But the outcome may be similar to the U.S.-North Korean summit… a path to de-escalate tensions going forward.”

Mainland Chinese shares finished higher on stimulus measures to support markets and private businesses. But, Taiwan’s shares fell 0.3 percent on the back of chipmakers clocking hefty losses following Nvidia’s drop overnight.

A softer dollar did little to benefit most currencies even as the sterling fell after a series of resignations rocked British Prime Minister Theresa May’s government and threw into doubt her long-awaited Brexit agreement.

“There is generally a weak risk environment related to the issues in Europe around Brexit and the uncertainty there,” said Jakob Christensen, chief analyst and head of EM research at Danske Bank.

“In addition the weakness in the global economy is the background that adds to the anxiety. These two factors play a role here and despite the lower dollar, they add concerns about risk assets,” added Christensen.

The Russian rouble turned negative after trying to test a 2-week peak against the dollar as traders assessed geopolitical risks, while a recovery in oil prices pushed stocks higher.

The Chinese yuan declined 0.1 percent against the dollar, but was on course for a winning week as comments from the central bank eased pressure to lend.

Chinese financial institutions should take steps to reasonably manage the pace and intensity of credit supply, the central bank said on Friday, following a sharp slowdown in credit growth last month.

The Turkish lira was little changed despite industrial production data showing a 2.7 percent fall in September, further evidence that the country is poised for a recession.

On the week, however, the currency is on course for a 2 percent rise thanks to a jump on Thursday after a report that the U.S. government is exploring possible ways to remove U.S.-based Muslim cleric Fethullah Gulen, a staunch critic of Turkish President Tayyip Erdogan.

Ankara’s demand for Gulen’s extradition has been one element in a dispute with Washington.

Eastern European currencies were mostly steady against the dollar. The Polish zloty was little changed after a newspaper report that the country’s central bank governor may resign.

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FRANKFURT (Reuters) – Soured credit, cybercrime and Brexit are among the biggest risks facing euro zone banks in 2019, the European Central Bank said on Tuesday, as it set out its supervisory priorities for the year ahead.

The euro zone’s growth has reduced overall economic uncertainty, but global risk factors from protectionism to a hard Brexit and emerging-market turmoil are growing and warrant closer monitoring, the central bank said. It keeps watch over 118 of the biggest euro zone banks.

“Compared to last year, there has been a substantial decrease in risks stemming from economic and fiscal conditions in the euro area, mostly due to a favourable cyclical momentum,” the ECB said in a regular risk assessment exercise.

“At the same time, geopolitical uncertainties and risks of repricing in financial markets have increased. Advances in digitalisation exacerbate the risks related to banks’ legacy IT systems and cyberattacks.”

Other notable risks include a repricing in financial markets and the impact of record-low interest rates on bank profitability, it added.

With regard to Brexit, the ECB stressed that banks need to be ready for any outcome, since no agreement has been reached just months before Britain is due to exit the European Union.

“Banks’ preparedness for Brexit remains a high priority for ECB Banking Supervision,” the ECB said. “ECB Banking Supervision will further prepare to take over the direct supervision of a number of institutions that are newly identified as significant owing to the Brexit-induced relocation of activities.”

It added that it will continue to press banks to reduce their stock of non-performing loans after notable progress this year and will also scrutinize lending practices to mitigate potential risks.

It will also conduct a targeted review of banks’ internal models for calculating risk to reduce unwarranted deviation from its own expectation.

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NEW YORK, Oct 5 (Reuters) – The U.S. bond market’s gauges on investors’ inflation outlook rose on Friday as government data showed a steady rise in wages and the jobless rate hitting a 49-year low in September, hinting at some building in price pressure.

The latest labor figures reinforced the view that domestic wage inflation is accelerating, which would allow the Federal Reserve is keeping raising short-term borrowing costs gradually in an effort to keep the economy from overheating.

The upbeat payrolls report also spurred selling in the bond market for a third straight day, propelling the 10-year Treasury yield to a seven-year peak near 3.25 percent.

“You are seeing some wage acceleration so it’s natural you see some people selling,” said Robert Tipp, chief investment strategist at PGIM Fixed Income in Newark, New Jersey. “I think it’s overdone,” he said of the market rout.

Average hourly earnings grew 0.3 percent in September, bringing their year-over-year increase to 2.8 percent.

This compared with a similar monthly rise in August and an annual gain of 2.9 percent which was its largest yearly increase in over nine years.

Moreover, the unemployment rate fell to 3.7 percent, which was the lowest level since December 1969.

While the bond market took another beating on Friday, some investors increased their holdings of longer-dated Treasury Inflation Protected Securities based on evidence of further wage growth.

The yield spread between 10-year TIPS and regular 10-year Treasuries, or the 10-year inflation breakeven rate, was 2.17 percent, the highest level since May and up 0.90 basis point from Thursday, according to Tradeweb data.

However, the five-year TIPS breakeven rate weakened marginally to 2.06 percent, just below 2.07 percent set on Wednesday, which was the highest level since July 13. (Reporting by Richard Leong Editing by Tom Brown)

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LONDON, Oct 23 (Reuters) – An ugly start to European trading pushed world shares towards their lowest level in a year on Tuesday, as negative drivers from Saudi Arabia’s diplomatic isolation to worries about Italy’s finances and trade wars piled on the pressure.

Selling escalated from Wall Street into a heavy selloff in Asia before hitting Europe, which was facing a fifth day of uninterrupted declines.

The tech sector posted the worst performance after chipmaker AMS plunged 17 percent as its outlook triggered alarm bells, but there was a broader force at play.

The pan-European STOXX 600 was near a two-year low with almost half of its stocks now in bear-market territory — down 20 percent from their peak.

Germany’s DAX also fell to late 2016 lows, London’s FTSE was down near April lows, and MSCI’s world share index was just two points of a one-year low.

“This morning weaker stocks in Asia raised some eyebrows and overall sentiment is suffering from trade tensions, Italy to Brexit; a concoction of concerns,” said ING strategist Benjamin Schroeder.

The euro also fell towards a two-month low and Italian bonds struggled before a European Commission meeting that could see Brussels take the unprecedented step of demanding changes to Italy’s recently laid out budget plans.

That has bred some doubt about the European Central Bank raising interest rates next summer, leaving the euro at $1.4390 . Doubts about Britain’s prime minister, mired in a stalemate over Brexit, kept the pressure on sterling.

All that contributed to the risk-averse mood, with the safe-haven Japanese yen and Swiss franc strengthening while higher-yielding currencies like the Australian and New Zealand dollars fell.

“The prospect of a normalisation of (ECB) monetary policy was the main reason why the euro was able to appreciate over the past year. However, there is a rising risk that this support is now going to crumble,” Commerzbank analyst Thu Lan Nguyen said.

SAUDI TENSIONS

Markets were also waiting for Turkey’s president to reveal his country’s take on the killing of Saudi Arabian journalist Jamal Khashoggi at a Saudi consulate in Istanbul this month.

Saudi Arabia, a top crude oil exporter, faces international pressure to provide all the facts about an incident that has raised a global storm and added the threat of sanctions against the kingdom to a list of market concerns.

U.S. President Donald Trump said on Monday he was not satisfied with what he had heard from Saudi Arabia about the killing, but expressed reluctance to punish the kingdom economically.

Investors worry that may lead to Saudi retaliation through crude oil, although a Saudi pledge to play a “responsible role” and keep markets supplied held down crude prices on Tuesday.

Front-month Brent crude oil futures were at $79.51 a barrel, down 0.4 percent. U.S. West Texas Intermediate (WTI) crude futures were at $69.12 a barrel, dropping 0.35 percent.

Asia’s overnight tumble gave back some of the ground the region had clawed back over the last two sessions.

MSCI’s broadest index of Asian shares dropped 2 percent to a 1 1/2-year low, with declines in many of the region’s heavyweight bourses even more pronounced.

South Korea’s Kospi and Hong Kong’s Hang Seng both fell 3 percent and Japan’s Nikkei lost 2.7 percent.

“We’ve got a few negative factors when market sentiment was already fragile,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management. “And earnings from some Japanese companies were weaker than expected, with some starting to blame trade wars.”

The yen gained 0.4 percent amid the risk-off mood to 112.42 to the dollar.

The yuan was little changed but stood near Monday’s 21-month low of 6.9445 per dollar in the onshore trade on expectations China will pursue looser monetary policy to cope with pressure from U.S. President Donald Trump on tariffs.

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