Emerging-Market Assets Drop as Investors Wait for Fed Rate Clues
(Bloomberg) -- Emerging-market assets fell for a second day amid a rout in commodity prices and with traders focused on a slew of economic data that will provide more clues on the Federal Reserve’s rate-cut path.
Gauges for emerging-market stocks and currencies extended losses after US manufacturing activity shrank in August for a fifth month, reflecting faster rates of decline in orders and production. The data marked the start of a busy week of economic reports, which will culminate with nonfarm payrolls statistics released on Friday.
“This is a week when external sentiment is a key driver behind EM sentiment,” said Henrik Gullberg, macro economist at Coex Partners Ltd. Gullberg added that commodity producers are being weighed down by a slump in prices, following earlier data from China.
The MSCI gauge for developing-world stocks fell 0.6% on a closing basis, while the gauge for currencies dropped 0.1%.
Latin American currencies fell as commodity prices tumbled and a rally in the Japanese yen undermined carry trades. Oil erased its gains for the year after a deal to restore supplies from Libya added to concern about the tepid demand for crude.
Brazil’s real reversed early gains triggered by stronger-than-expected GDP data, which increased bets the central bank will need to deliver a more aggressive tightening cycle.
In credit markets, Latin American borrowers lined up to tap global bond markets in what’s shaping up to be the region’s busiest day for hard-currency debt issuance this year.
Uruguay announced that it’s selling dollar bonds, while Brazil’s state-controlled oil producer Petroleo Brasileiro SA is returning to global debt markets for the first time in over a year to borrow $1 billion. Lenders BBVA Mexico SA and Banco de Credito Del Peru are also selling dollar debt on Tuesday.
William Snead, a strategist at Banco Bilbao Vizcaya Argentaria in New York, said he expects primary activity in the region to remain strong, driven by lower US Treasuries and tighter bond spreads.
Among the bright spots in emerging-debt, investors have been flocking to South Africa’s local-currency bonds as the domestic outlook improves and with US interest rate cuts on the horizon, setting the stage for even greater returns.
In Turkey, annual inflation eased sharply in August, as borrowing costs of 50% filter through to the economy and dampen demand. Price growth slowed to 52% year-on-year from 62% the previous month, data showed Tuesday. The Turkish lira fell 0.3%.
Romania’s stock market meanwhile is becoming one of Europe’s star performers, with investors upbeat about the rally running further as more companies are expected to go public.
