Emerging-Market Assets Trade Mixed as Global Risk Optimism Wanes
(Bloomberg) -- Emerging-market assets showed a mix of gains and losses on Tuesday as last week’s surge in demand for risk wanes ahead of the Federal Reserve’s annual Jackson Hole meeting this week.
The Indonesian rupiah, Hungarian forint and Colombian peso outperformed currency peers, while the Brazilian real and the Mexican peso were the biggest losers, weakening 1.2% and 1.6% respectively versus the greenback. The overall MSCI EM currency index edged higher, while its counterpart for stocks trimmed earlier gains, as Latin American equities sank.
While US interest-rate swap markets are expecting the Fed to kick off its easing campaign in September, investors are awaiting clues on the pace of the cuts. Bigger reductions in borrowing costs in the US would lead policymakers in the developing world to ease aggressively as well.
“It’s a transition week to see how the rebound in risk appetite holds up, ending with Jackson Hole,” said Alejandro Cuadrado, head of global FX at BBVA in New York. “LatAm is generally on hangover mode after the bigger rally, in line with a more clouded global risk environment after reaching previous highs.”
Fed Governor Michelle Bowman says she still sees upside risks to inflation, but it will become appropriate for the central bank to begin gradually lowering interest rates if price-growth continues to slow. Money managers will now keep an eye on the minutes from US policymakers’ last meeting, which will be released on Wednesday.
Still, the Mexican peso sank past the 19-per-dollar mark as the unwinding of yen carry trade positions continued and risks from a reform to Mexico’s judicial system spooked investors. Brazil’s real also fell as the central bank chief signaled hikes are less certain than markets forecast amid an improving international outlook.
The Colombian peso bucked the trend in the region, strengthening for the day after a local holiday Monday, while its Chilean counterpart swung between gains and losses.
Elsewhere, the lira and Turkish stocks slipped after the central bank kept rates on hold, while the rand broke its longest winning streak in 13 years as appetite for risk assets soured.
In Israel, the shekel gained 0.3%. The currency erased previous losses spurred by Hamas denial of what it said were US claims it is stalling negotiations to end the conflict in Gaza. Israeli dollar bonds were among the best performing in emerging markets for the session, rising along with investment-grade rated peers.
