In the News

Emerging-Market Assets Gain as US Data Boost Case for Fed Cuts

(Bloomberg) -- Emerging-market assets rallied after fresh US retail sales data pointed to consumer strain, boosting the case for the Federal Reserve to cut rates this year.

Indexes for currencies and equities from developing nations rose following the release of US retail sales data that suggested a downshift in consumer spending. Traders shrugged off mixed signals from industrial production data that showed an increase in May helped by a pickup in factory output.

Weakness in US economic indexes always provides an opportunity to speculate that the Fed will be able to cuts rates this year and that “motivates high risk markets,” said Juan Perez, director of trading at Monex USA.

Further adding to rate-cut bets, Richmond Fed President Thomas Barkin said this month’s inflation figures were “very encouraging” and scenarios of one rate cut, then hold, may be sensible.

Most Latin American currencies were rising, led by the Mexican peso and Colombian peso, which trimmed some of last week losses, aided by higher oil prices.

“What’s limiting gains in Latin America is that other regions are not cutting with the same enthusiasm,” Perez said.

After weeks of market turmoil triggered by political upheaval across developed and emerging economies alike, investors appear to be tuning back to central bank actions toc provide the next impetus for currencies. Policymakers in Australia left the official cash rate unchanged, but highlighted that inflation was proving sticky. Hungary decided to slow the pace of cuts, while a rate decision is expected later in Chile.

Stocks were led higher by gains in Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. On Tuesday, Citigroup raised its price target for TSMC shares on upward earnings-estimate revisions. The Taiwanese firm alone accounted for more than a third of the MSCI benchmark’s advance on the day.

Elsewhere, Peru announced a plan to swap or buy back nearly a dozen bonds. Meanwhile, Bank of America still sees value Ukraine bonds even as the country’s restructuring proposal was rejected by bondholders.

The South African rand extended its June rally as the African National Congress — which lost its parliamentary majority in an election at the end of last month — agreed to a power-sharing deal with business-friendly opposition parties.

Reporting by Peter Laca and Nicolle Yapur

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