BackPerky US data, Fed rate talk knocks emerging assets
MSCI's emerging market index snapped a two-day winning streak to fall 0.9%, tracking developed peers after US data showed accelerating inflation
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London: Heightened prospects of a Federal Reserve interest rate rise weighed on emerging markets on Wednesday, while political turmoil surrounding South African finance minister Pravin Gordhan knocked the rand to a two-month low.
MSCI’s emerging market index snapped a two-day winning streak to fall 0.9%, tracking developed peers after US data showed accelerating inflation and comments by Federal Reserve officials rekindled expectations of a near-term rate rise.
As the dollar hit a three-week high, emerging currencies fell with South Africa’s rand suffering the biggest losses, tumbling 2%. South African assets, already under pressure from weak economic prospects, have had a roller-coaster week following weekend reports that Gordhan’s arrest was imminent.
The rand fell, then strengthened after he hit back on Tuesday, only to lose ground again.
“The fact Gordhan is under so much pressure does speak to the power of the anti-reform faction within South Africa," said UBS strategist Manik Narain, adding timing was delicate with the country also facing a review of its sovereign rating.
“Investors got back into South Africa (in recent months) but are being exposed to the political dynamic resurfacing again... It’s not a good time for someone senior within the party to be facing these pressures."
Gordhan is being investigated by police over the creation of a covert surveillance unit in the revenue services during his time as head of the agency.
The minister, who said on Tuesday the reports of his imminent arrest amounted to an attack on the treasury, is due to attend a parliamentary debate in his first public appearance this week. South African data meanwhile showed inflation had slowed year-on-year ahead of a central bank meeting on Thursday.
Other currencies were also under pressure. Russia’s rouble tracked oil prices lower and slipped 0.7%. Turkey’s lira matched the rouble’s move to hover just below the weakest level in 11-weeks hit on Monday, as an adviser to President Tayyip Erdogan said inflation was not a threat any more and the central bank had to make a series of interest rate cuts.
Poland’s zloty led central European currencies lower against the euro, slipping by 0.5% to its weakest since Friday, while Hungary’s forint and Romania’s leu almost matched those losses.
Ratings agency Fitch warned of heightened fiscal risk for Poland and trimmed its forecast for economic expansion. Reuters
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