Looming US rate hike pushes emerging stocks, FX to weekly loss

By: | Updated: March 10, 2017 4:42 PM

Emerging stocks and currencies headed on Friday for a second straight week of losses as investors showed nerves ahead of next week's all-but-certain interest rate hike in the United States and a gathering of global finance chiefs.

Currencies such as Mexico’s peso, Russia’s rouble , South Africa’s rand and the Turkish lira strengthened on the day against the dollar which slipped off one-week highs before the release of key U.S. jobs data. (Reuters)

Emerging stocks and currencies headed on Friday for a second straight week of losses as investors showed nerves ahead of next week’s all-but-certain interest rate hike in the United States and a gathering of global finance chiefs. Meanwhile in South Korea, stocks ended at a more than one-week high and the won strengthened against the dollar on the day after the impeachment of President Park Geun-hye over a graft scandal involving the country’s conglomerates, paving the way for an election in 60 days. MSCI’s emerging market benchmark was treading water on the day with gains in South Africa, Turkey and Russia offsetting losses across Asia . But the index was on track to fall nearly 1 percent since Monday after a similar fall in the previous week.

Currencies such as Mexico’s peso, Russia’s rouble , South Africa’s rand and the Turkish lira strengthened on the day against the dollar which slipped off one-week highs before the release of key U.S. jobs data.

But all were on track for weekly losses of well over 1 percent versus the greenback.

Analysts polled by Reuters expected a 190,000 rise in U.S. jobs last month, fewer than January’s 227,000, and the data – barring any negative surprises – is expected to cement expectations of a rise in U.S. interest rates on March 15.

“The market has a bit of concern about emerging market performance, there is a worry a Fed hike will hit emerging market currencies and equities,” said Thomas Kwan, CIO and head of fixed income at Harvest Global Investments.

He expects U.S. policy makers to deliver two to three hikes this year and added:

“If there is a rate hike because inflation is rising and growth is not strong that would be a concern. At the moment I don’t think inflation is a problem but growth is relatively strong.”

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There are some worries also about what message finance chiefs of the G20 group of nations will deliver after meeting on March 17-18. This will be their first meeting since Donald Trump’s U.S. election victory in November and his reaffirmation of an avowedly protectionist ‘America First’ trade stance.

A draft communique prepared before the gathering showed that for the first time in more than 10 years a reference to “excessive global imbalances”, had been introduced – an apparent swipe at German and Chinese trade surpluses.

Central European currencies too were set for weekly losses against the euro , with the zloty at three-week lows after a standoff between Brussels and Warsaw .

Poland had objected to the reappointment of former Polish premier Donald Tusk to chair EU summits, but the bloc’s other 27 leaders voted in his favour.

“The Polish government is cornering itself a bit there,” said Jakob Christensen, head of emerging markets research at Danske Bank. “I expect the zloty to trade a bit weaker, adding to the negative sentiment after the central bank meeting on Wednesday, which was a little bit dovish.”

 

 

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