Emerging Markets Slip Amid Fed Caution, China Growth Concerns
(Bloomberg) — Hong Kong-listed tech stocks led emerging-market equities lower on Tuesday after measures announced to boost confidence in the world’s second-biggest economy left investors disappointed. Developing-world currencies were mixed as traders awaited key speeches and data that could shed light on the outlook for interest rates.
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MSCI’s main emerging-market stock index fell 0.8%, breaking a three-day winning streak, while a key gauge for currencies dipped 0.1%. Eastern European currencies and South Africa’s rand led gains, while Chile’s peso fell the most amid expectations for more steep interest rate cuts.
Losses in US tech giants damped risk taking across markets, at the same time that caution prevailed ahead of congressional testimony by Jerome Powell on Wednesday and Thursday, where the Federal Reserve chief is expected to reiterate the lack of urgency to cut rates. On Friday, US nonfarm payrolls figures will also be closely watched. Emerging-market currencies have been gaining since mid-January on hopes the Fed will soon start cutting interest rates.
“After clear optimism in previous weeks, everything seems to indicate that markets remain somewhat cautious while awaiting economic data that will be released this week,” analysts at brokerage Monex wrote in a note.
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Mexico’s peso firmed to its strongest since mid-January after breaking through the 17-per-dollar level on Monday, tempting more bullish bets. Hungary’s forint reversed early declines that had pushed it to the weakest in a year against the euro. The decline came after the government acknowledged it would take years to narrow its budget gap.
Meanwhile, Argentine bonds slipped, pulling back after a rally on hopes that President Javier Milei will be able to put together a political pact to push through his proposals to overhaul the economy.
China set its annual growth target at around 5%, a goal that analysts saw as out of reach without further stimulus. Its property debt crisis also showed more signs of trouble, with one of the country’s state-backed developers scrutinized by investors. That left MSCI Inc.’s EM equities gauge heading for a loss for the first day in four.
“Given the strong headwinds that China is facing, including the real estate troubles, a 5% target for this year is ambitious,” Commerzbank analyst Tommy Wu wrote in a note. “This means that the government will need to roll out stimulus more effectively.”
Israel is set to sell its first international bond in the public market since its war with Hamas erupted in October. A boom in issuance in eastern Europe also continued, with Croatia selling a benchmark-sized 10-year euro-denominated bond.
–With assistance from Srinivasan Sivabalan and Colleen Goko.
(Recasts with currency movements)
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