(Bloomberg) — Emerging-market stocks and currencies closed lower on Monday after fresh US factory data caused traders to reassess bets on interest rate cuts in the world’s largest economy, weighing on risk appetite.
A broad MSCI gauge for EM stocks dropped 0.1%, while its currency counterpart edged lower after trimming losses of as much as 0.2%. The Brazilian real and the Hungarian forint led declines among developing-nation currencies in a day of thin global liquidity as several markets across Europe, Australia and Hong Kong were shut for Easter Monday.
Losses had accelerated across EM assets following data that showed US factory activity unexpectedly expanded in March. The figure caused traders to price in less monetary policy easing by the Federal Reserve this year, briefly sending the odds of a first move in June to less than 50%.
Read more: June Rate-Cut Odds Dip Below 50% as Strong ISM Data Sinks In
Mexico’s peso dropped as much as 0.7%, reversing earlier gains after the US data was released. To Claudia Ceja, a strategist at BBVA Mexico, the currency — which hit its strongest level since late 2015 last week — could be vulnerable to more losses.
“After the strong rally I think this type of overreaction to positive data can continue, especially if the US labor market does not show strong signs of slowdown,” Ceja said.
On Thursday, Mexico’s central bank will issue minutes from its latest meeting, when it cut rates for the first time since 2021. Investors will be looking for signs of whether Banxico could continue cutting, which could undermine the peso, or potentially pause at its next decision.
Lira
Turkey’s lira surged against the dollar as President Recep Tayyip Erdogan signaled he’ll give his economic team more time to produce results despite a shock loss in local elections. In a Sunday vote, Erdogan’s ruling Justice and Development Party was defeated by the opposition in many of Turkey’s cities, including Istanbul and Ankara.
Read more: Lira Surges as Erdogan Gives Turkey’s Economy Plan More Time
Deutsche Bank said it’s constructive on Turkish assets following the election result.
“President Erdogan’s initial statements following the elections indicated his ongoing endorsement of the current economic program,” economist Yigit Onay and strategist Christian Wietoska said in a report on Monday. “With the conclusion of the local elections, attention now shifts toward the policy framework and the trajectory of the orthodox economic policies that have been in place since last year’s general elections”
In Asia, China’s factory activity beat expectations in March, boosting optimism about the world’s second largest economy. The data helped send gold to a fresh record earlier in the session.
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Published: 02 Apr 2024, 06:17 AM IST