Stocks slipped amid concern about earnings in China. A key gauge for emerging market currencies slid as much as 0.46%, the most intraday since Sept. 21 and halting a rally that has been driven by bets for an end to US monetary tightening. On Tuesday, the index touched its highest since April 2022. The pause ahead of the US Thanksgiving holiday on Thursday.
The University of Michigan’s consumer survey showed Americans expect prices to climb at an annual rate of 4.5% over the next year. Traders liquidated dovish Fed wagers in the options market.
The pull back in emerging-market currencies was exacerbated by the thin holiday volumes after a strong month for Latin American and emerging market currencies, said Juan Perez,
director of trading at Monex USA.
“Even the Federal Reserve has had members explain: do not look so much into cuts. Do not price that into what’s gonna be coming up next,” Perez said. “You still have a lot of volatility and uncertainty in the market because of that.”
The South African rand underperformed its peers and bond yields jumped after data on Wednesday showed that annual inflation quickened to a five-month high in October, though the increase was not seen shifting expectations that the central bank will leave borrowing costs unchanged on Thursday. The country sold its second Islamic bond Wednesday as the government accelerates its efforts to plug a borrowing shortfall of $2.6 billion for this fiscal year.
Zambia’s central bank lifted its benchmark interest rate by the most in four years to temper stubborn inflation and stabilize the local currency, which has come under pressure due to struggles restructuring debt.
Meanwhile, yields on interest rate swaps in Brazil fell after the governor of the country’s central bank said policymakers have room to continue lowering interest rates as inflation is well-behaved even if still a bit above the target.
The MSCI emerging markets equity gauge fell for the first time this week, dropping 0.6% with losses led by Asia, where tech and artificial intelligence stocks slid as investors reacted to Nvidia Corp.’s earnings. The combined effect of tighter monetary conditions, China‘s economic travails and geopolitical shocks is pressuring the profitability of emerging-market companies.
Members of the MSCI Emerging Markets Index are reporting the weakest earnings in two years, missing consensus analyst estimates by 16%, data compiled by Bloomberg show.
The year-end emerging-markets rally is vulnerable to earnings disappointment, Bloomberg Intelligence strategist Kumar Gautam and data scientist Claudio Fontana said in a note to clients. “While the declining trend in earnings revision for emerging markets ex-China seems to have reversed, it doesn’t seem so for China,” they said. “The mainland’s 12-month earnings-per-share growth trend and profitability remain weak.”
