In the News

EM Stocks Extend Rout As Powell Discards March Cuts: Inside EM

(Bloomberg) -- Emerging-market stocks extend losses, while currencies erase gains after the Federal Reserve held interest rates steady for a fourth meeting and Chair Jerome Powell signaled that rate cuts in March are “unlikely.”

During a press conference, Powell said that “it will be appropriate to dial back at some point this year,” which will further boost risky assets, according to Juan Perez, director of trading at Monex USA. Still, Powell’s move to signal that March cuts aren’t likely soured investor sentiment.

  • The MSCI Emerging Markets Index fell 0.5%, while a similar gauge of EM FX was almost flat
    • The South African rand, Hungarian forint and Chilean peso all strengthened against the greenback
  • The Mexican peso erased gains, now falling 0.2%
  • The real was flat as traders look ahead to Brazil’s central bank decision later in the day; policymakers are widely expected to deliver a fourth interest rate cut of 50 basis points and make only minor changes in their statement
    • Chile is also set to announce a rate decision after the market close
    • Earlier, Colombia maintained the pace of monetary policy easing with a second straight quarter-point cut to interest rates as consumer price increases remain above target and inflationary threats abound
  • The CSI 300 Index of China fell in January by 6.3%, marking a record sixth-straight month of losses
  • Major emerging-market currencies except the Indian rupee are set to end the month with losses; declines are led by the Chilean peso, Thai baht and South Korean won
  • Both hard currency and local currency bonds of developing countries are set to close the month with about 1% of losses, according to data compiled by Bloomberg

Top EM Stories:

  • Colombia maintained the pace of monetary policy easing with asecond straight quarter-point cut to interest rates as consumer price increases remain above target and inflationary threats abound.
  • Saudi Arabia is considering plans to revive a follow-on offering in Aramco as soon as February, in a multibillion-dollar deal that’s likely to rank among the biggest share sales in recent years, according to people familiar with the matter.
  • The pessimism priced into Egypt’s dollar bonds is overdone, according to Goldman Sachs Group and Pictet Asset Management, with the two banks saying they expect the nation to avoid default and perform well for investors.
  • The first dissent in Hungary’s rate-setting body since 2016 showed cracks inside the central bank after pressure from Viktor Orban’s government to step up monetary easing.
  • Vontobel Asset Management is reducing holdings in Chinese stocks to free up cash for more attractive picks in countries like Brazil, India and Mexico.
  • An Argentine court ruled that the labor reform President Javier Milei tried to implement through decree is unconstitutional, the latest blow to his plans to overhaul South America’s second-largest economy.
  • Brazil’s government is working on an emergency plan to help alleviate financial pressures on airlines and address the high cost of consumer litigation and a lack of competition, according to a person with knowledge of the matter.
  • Zimbabwe’s currency plunged to a new low reawakening bitter memories of the past and bringing into focus the poor state of the economy.
Reporting by Leda Alvim and Selcuk Gokoluk

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