The MSCI currency index fell 0.1%, with currencies in Mexico, Chile and Brazil leading the losses. The Bloomberg Dollar Spot Index rose 0.2%, while US 30-year Treasury yields rose above the two-year for the first time since January on bets Trump would pursue an expansive fiscal policy and raise tariffs if he wins.
The shooting “seemed to immediately feed into a narrative of restrictions to come for global trade,” said Juan Perez, director of trading at Monex USA. “The anti-trade perspective is discouraging for EM as well as Latin America.”
Markets are also following Federal Reserve Chair Jerome Powell’s remarks, in which he declined to specify the timing for rate cuts, but said that inflation readings in the second quarter “do add” to confidence that inflation is heading sustainably toward 2%. He also remarked that the labor market has moved into better balance.
Economists at Goldman Sachs said they “see a solid rationale” for the Federal Reserve to cut rates as soon as their July 30-31 meeting, citing the latest unemployment and inflation data.
Emerging-market stocks also slid, dropping 0.3%, with Hong Kong-listed Chinese shares posting the biggest losses, including Tencent Holdings Ltd. and Alibaba Group Holding Ltd. Asian equities were dragged lower after data showed China’s economy grew 4.7% in the second quarter, slower than the 5.1% estimated by economists.
Economic and election risks are threatening to derail a rebound in emerging-market assets driven by expectations for monetary easing by the Federal Reserve. Bets on a China-led stocks rally are fading as data show the country’s stimulus is failing to revive consumer demand, even as it boosts industrial output.
China’s “domestic economy is weak and the People’s Bank of China should be cutting interest rates further to support the economy,” Volkmar Baur, a strategist at Commerzbank AG, wrote in a note. “However, this does not seem to be the primary policy focus, as there are fears that the currency would suffer.
Excessively high interest rates are weighing on the economy.” The dollar’s rebound on Monday further undermined the case for EM assets. While the US election is still almost four months away, President Joe Biden’s poor debate performance and the attempt on Trump’s life have created an urgency among traders to price in risks related to the outcome. Some investors see a Trump presidency adopting fiscally looser policies, which will support higher Treasury yields. “The chances of tariffs going up significantly on Chinese imports under a Trump administration are very high, in our view.
As Trump’s poll numbers increase, investors get more concerned about Chinese equities,” said Ashish Chugh, a portfolio manager at Loomis, Sayles & Co.
