Emerging Assets Pare Losses After US PPI Trails Estimates

(Bloomberg) — Emerging-market assets pared losses Thursday after the latest US inflation figures came in slightly lower than estimates, softening the risk-off sentiment sparked by CPI data from the world’s largest economy in the last session.

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The MSCI index for developing world currencies fell 0.2%, from as much as 0.4% earlier, while a similar gauge for emerging stocks also pared losses. Individual currencies are mixed, with the Hungarian forint leading gains while the South Korean won underperformed. Latin American currencies largely pared initial gains following the release of the data, with the Mexican peso up 0.1% and the Brazilian real trading flat.

Emerging assets are still under pressure due to the hotter-than-expected US consumer data released Wednesday, which sent traders scrambling to rework the outlook for US interest rates, and rising geopolitical tension in the Middle East.

“EM got hit, as you would expect and some of the carry trades retraced a bit but not enough to trigger any large stops,” Brad Bechtel, global head of FX at Jefferies Financial Group Inc., wrote in a note to clients. “These trades are all very much in the money still and miles away from their stops. I would expect MXN, PLN, COP to continue to find their footing and eventually start rallying again.”

The Mexican peso, Polish zloty and Colombian peso all gained Thursday.

Bond Traders Shift Thinking to a 5% Yield, No Rate Cut World

The forint rebounded against the euro and Hungary’s 10-year bond yields crossed 7% for the first time since November after the publication of March inflation data. While price growth slowed further within the central bank’s tolerance band, rate setters have pledged to moderate the pace of easing going forward after swings in the currency.

In South Africa, traders revised rate bets from cuts to hikes this year due to persistent inflation. The rand strengthened as much as 0.4% against the dollar.

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