Emerging-Market Currencies Tumble After Hot US Jobs Data

(Bloomberg) — Emerging-market currencies slumped Friday as a blowout US jobs report stoked concern that the Federal Reserve will delay rate cuts beyond March and possibly May. The Turkish lira slid late in the day after the central bank chief resigned.

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US nonfarm payrolls increased 353,000 last month, almost double the 185,000 estimate, while previous months were revised higher. Latin American currencies tumbled, with the Chilean peso leading the way, as traders reassess their positions on the likelihood of higher rates for longer.

“Today’s jobs data provides a significant blow to the building confidence over US disinflation and a rapid easing cycle from the Fed,” said Simon Harvey, head of FX analysis at Monex Europe Ltd. “With the prospect of Fed easing in May no longer a sure thing, EM assets are likely to come under a wave of pressure.”

In Turkey, the lira dropped after central bank governor Hafize Gaye Erkanthe said she was resigning from her role for personal reasons. The lira weakened 0.6% to 30.5163 against the dollar as of 10:45 p.m. in Istanbul on Friday night, a record low on a closing basis. The fallout from the resignation may be limited though, said Patrick Esteruelas, head of research at EMSO Asset Management in Miami.

“Erkan submitted her resignation for personal reasons, and it has nothing to with her policy choices,” Esteruelas said. Finance Minister Mehmet Simsek “continues to have broad control over all economic policy levers, with broad backing from President Erdogan, and is expected to appoint somebody credible to replace her.”

In Latin America, Mexico’s peso slid 0.3%, though it remains the best performing currency in the region. The country’s tight link with US helps it benefit from strong growth in the world’s biggest economy. The Brazilian real fell 1.2% while the Chilean peso tumbled 1.6%.

Equities across the developing world also pared gains, but remained higher in the session, rising 0.6%. Emerging markets left Chinese stocks behind this week, outperforming by the most in 11 months, as investors remain unconvinced that a $728 billion stimulus can solve the problems dogging the world’s second-biggest economy.

A key gauge of China’s mainland stocks, the CSI 300, posted the biggest weekly drop since October 2022, while the Shanghai Composite fell the most since 2018.

Read more: China Stocks Swing Wildly in Chaotic End to Worst Week in Years

Chinese stocks have extended their losses this year to more than $1.3 trillion as money managers pull funds from the country that’s seeing a growth slowdown, property crisis and geopolitical tensions with the West. That contrasts with other developing nations, where falling borrowing costs are sparking new growth and earnings cycles. Analysts have reduced their forecasts for profit at Chinese companies to the lowest since 2020, while lifting estimates for the rest of emerging markets by about 8% since July last year.

The country’s economic woes worsened this week with property giant China Evergrande Group beginning insolvency proceedings, while data showed a contraction in manufacturing and slippage in industrial profits. That offset brief optimism seen late last week about a series of measures the government and the People’s Bank of China took to support markets.

Indian stocks posted their biggest weekly advance since December after the government of Prime Minister Narendra Modi presented a budget focusing on infrastructure development and fiscal prudence. In Korea, foreign investors poured in $2.5 billion this week amid a government push to boost corporate governance. Money managers see both markets as more attractive than China, where regulatory risks remain high.

“The India-over-China trade had another good week, with investors cheering a capex-heavy budget in India and bemoaning the lack of sufficient stimulus for real estate and consumers in China,” said Hasnain Malik, a Dubai-based strategist at Tellimer. “Tech is steaming ahead, driven by artificial intelligence and cloud computing, and the biggest Korean and Taiwan stocks are clear beneficiaries.

Meanwhile, Egypt’s sovereign dollar bonds posted some of the biggest gains among EM peers after International Monetary Fund Managing Director Kristalina Georgieva said the lender is close to agreeing on a new financial package for the North African country.

Nigeria’s naira was attracting greater investor interest after authorities let the currency slide enough to catch up with parallel-market rates. The measure, along with some rule easing, has created fresh hopes that the administration of President Bola Tinubu is reviving its reform agenda.

–With assistance from Giovanna Bellotti Azevedo, Maria Elena Vizcaino and Carolina Wilson.

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