(Bloomberg) -- Emerging market equities and currencies tumbled on Friday, on track for their worst day in months, marking the end of a turbulent week amid mounting concerns over a bubble in the artificial intelligence industry.
MSCI’s gauge for emerging market stocks slumped 2.7%, on track for its biggest one-day drop since April 7, when markets were roiled in the immediate aftermath of President Donald Trump’s so-called Liberation Day tariff announcement. The index is also on its way to its first monthly loss this year.
A corresponding gauge for currencies in the developing world also sank, falling 0.3%, set for its worst session since early July. Brazil’s real, Colombia’s peso and Chile’s peso were
among the worst performers.
Questions on the Federal Reserve’s plans for future rate cuts in the US are weighing on the assets, according to Brendan McKenna, EM economist and FX strategist at Wells Fargo
Securities in New York.
“The Fed is top of mind for markets,” he said. “Pricing out the Fed cutting in December has injected a lot of volatility into FX and broader markets, and EM has not escaped that volatility.”
Still, New York Fed President John Williams said he sees room to lower interest rates again in the near term as the labor market softens, reviving speculation over a rate reduction in December. But some policymakers, including Boston Fed President Susan Collins and Dallas Fed President Lorie Logan voiced their opposition to, or uncertainty over, supporting a third move in December.
A lack of data — a hangover from the longest US government shutdown on record — is clouding the picture further, according to Juan Perez, senior director of trading at Monex. The absence of data “means frustration every day until the FOMC meeting” with policymakers playing a “guessing game,” Perez said. “The Fed members, responsibly, should not make a move.”
Elsewhere, Poland’s government issued debut bonds with payouts linked to a new money-market benchmark, taking a big step in the long-delayed process to phase out the Wibor rate by the end of 2027.
And South Africa anticipates strong demand for a planned eurobond sale, citing an improved economic outlook as it considers raising $2.7 billion in global markets to meet foreign-currency commitments for the fiscal year.
