EMERGING MARKETS-Stocks, FX steady as investors monitor US-Iran standoff

‌Stocks ​and currencies across most emerging markets were steady on Monday, as escalation in the Middle East tensions kept investors focused on the fate of the two-week ceasefire between the United States and Iran.

The U.S. said on Sunday it seized an ‌Iranian cargo ship that tried to run its blockade and Iran vowed to retaliate. Iran also said there were no plans for a second round of negotiations with the U.S., a day before the ceasefire was due to expire. Crude prices, a key driver for emerging markets, jumped 6% to $95 a barrel amid uncertainty over shipments through the Strait ‌of Hormuz, a vital route for global energy supplies.

"My prior working assumption that neither side was actively seeking a re-escalation in hostilities... is now in some ‌doubt after renewed attacks on commercial shipping over the weekend," said Michael Brown, senior research strategist at Pepperstone. "Still, I’d wager that once more President Trump’s threats to ‘knock out’ infrastructure in Iran are an example of the now-familiar ‘escalate to de-escalate’ negotiating gambit."

MSCI's index tracking equities in developing economies edged up 0.2%, with heavyweight China stocks doing most of the lifting as investors cheered new domestic market rules. However, gauges for ASEAN stocks ⁠and central and ​eastern Europe lost 0.1% and 2%, respectively.

An ⁠index tracking EM currencies was flat against the dollar, while currencies of net energy importers such as India's rupee, South Africa's rand and South Korea's won each weakened 0.5%. Over a month-long halt to oil rents ⁠and uncertainty over the resumption of full energy production is starting to hurt the Middle East economies.

The United Arab Emirates began discussions with the U.S. about securing a financial backstop, in ​case the U.S.-Israeli war with Iran sends the Gulf nation into a deeper crisis, a weekend report said. UAE's bonds were broadly steady, while stocks slipped 0.5%.

Over the weekend, ⁠ratings agency Moody's downgraded the outlook of Bahrain and Iraq to 'negative'. Both countries' hard-currency bonds were marginally lower. Countries continue to explore ways to deal with threats to energy security, with Thailand planning an emergency decree to borrow $15.6 billion ⁠to ​address economic issues, according to a deputy prime minister.

Thailand had been grappling with declining tourism, further exacerbated by the conflict. The baht slipped 0.3% and is down 2% this year. In Poland, Finance Minister Andrzej Domanski said that he expects the reduction in fuel tax rates that are currently in effect until the end of April ⁠to also apply in the 'first weeks' of May, but that there was no need to amend the state budget. The zloty was flat.

Romania's leu was steady against ⁠the euro and has depreciated over 1% this ⁠year. The country's hard-currency bonds were marginally lower and have logged losses so far this year. The biggest party of Romania's broad ruling coalition of four pro-European Union parties will likely call for Prime Minister Ilie Bolojan's resignation on Monday over repeated internal differences ‌on spending cuts. However, President Nicusor ‌Dan said that the coalition will have to continue to govern.