MSCI Inc.’s benchmark index for emerging-market stocks rose 2.7%, extending a rally to a third day and crossing both its 100-day and 200-day moving averages. The gauge of developing-nation currencies gained 0.8% to reach the highest since early August. The average sovereign-risk premium for developing nations over Treasury yields narrowed, according to indicative data from JPMorgan Chase & Co.
Stocks and currencies are gaining on optimism that central banks worldwide, including the Federal Reserve, are done with sharp interest-rate increases — a view bolstered by lower-than-expected inflation rates in the US and UK. Growth signals are improving too, with data from China suggesting a continuedrecovery.
“The implication for FX markets is that broad USD weakness is likely to persist as long as financial conditions continue to ease or at least don’t tighten back up again,” said Henrik Gullberg, macro strategist at Coex Partners Limited. For Goldman Sachs Group Inc., the gains are likely to continue. Emerging market equities are set to rally about 9% over the next 12 months as earnings rebound following a decade of stagnation, with developing nations in Asia forecast to gain the most, rising 14%, the bank said. Mainland China, Korea, Thailand and India are among bright spots across the continent, according to the report.
Developing markets in Europe are forecast to gain 9% while Latin America just 5%, the Goldman models show. The bank strategists forecast the strongest upside potential in South Africa, Mexico, and Colombia.Busy Day In a day packed with economic data, producer prices in the US unexpectedly declined in October — the most since April 2020 — adding to evidence of abating inflationary pressures across the economy and boosting assets across the developing world.
Retail sales also slowed, while prior months were revised higher, signaling some resiliency going into the holiday season.
Moving ahead, Juan Perez, director of trading at Monex USA, said markets are now entering a period of concern over deflationary pressures “instead of looking forward to signs of disinflation.”
The dollar “has room to lose in our opinion and much of what we forecast has materialized to an extent, particularly the euro rising and the Mexican peso strengthening,” Perez said. “A new dynamic of deflation will need to be monitored if the data remains on a weakening trend.”
Developing economies and their currencies stand to benefit when easier financial conditions and the recovery in the US translate into a pickup in global growth, Gullberg said. Currencies closely tied to China’s economic prospects led gains among peers on Wednesday. South Korea’s won and Thailand’sbaht increased at least 1.6% each.
In the African continent, Ethiopia reached an in-principle agreement with bilateral creditors to temporarily suspend debt payments. The Horn of Africa nation, which has been seeking to rework its liabilities since 2021, also plans to start talks to restructure its $1 billion eurobond maturing next year.