Emerging Assets Slide As Hot U.S. Inflation Delays Fed Cut Odds
Emerging-market stocks headed for the longest winning streak in a month amid optimism for a robust earnings-reporting season driven by artificial intelligence and China’s stimulus measures.
(Bloomberg) -- Emerging-market currencies slumped after hotter-than-expected US inflation numbers curbed bets for the Federal Reserve to cut interest rates.
MSCI’s gauge of emerging-market currencies fell 0.1%, reversing gains seen earlier on Wednesday, while the MSCI Emerging Markets Index for stocks pared gains to 0.4%, still maintaining its highest level since June 2022. Tencent Holdings Ltd. and Alibaba Group Holding Ltd. accounted for more than half the gains.
“Higher-for-longer is bad news for EM and risk assets, also because it increases the risk of a more pronounced downturn in the US and global economy,” said Henrik Gullberg, macro economist at Coex Partners Ltd. “These CPI numbers, coupled with recent labor market reports, make a June cut less likely, which in turn means Fed is running out of time to get rate cuts in before the elections.”
Read more: US Core CPI Tops Forecasts Again, Likely Delaying Fed Rate Cuts
Most currencies gave up earlier gains, with the Hungarian forint leading losses. The Brazilian real and Chilean peso also slid, while the Mexican peso swung between gains and losses.
The rand plunged as much as 0.9% after the latest opinion poll showed support for the ruling African National Congress plunging below 30% in next month’s election.
Earlier, Brazil’s annual inflation rate eased more than expected, boosting bets that the central bank will continue cutting its interest rate. Swaps, which initially fell following the data, were little changed following the US CPI release.
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