Emerging-market investors avoided making big bets on Monday as they braced for a big data week including inflation reports from the world’s two biggest economies.
(Bloomberg) — Emerging-market investors avoided making big bets on Monday as they braced for a big data week including inflation reports from the world’s two biggest economies.
The MSCI Emerging Markets Index of stocks and its currency counterpart both fell less than 0.1%. Asian assets drifted lower on Friday’s US jobs data, before giving way to mixed moves in the emerging Europe, Middle East and Africa region where local news dominated.
Israel stocks rose amid receding political risk after Prime Minister Benjamin Netanyahu said he won’t pursue the entire judicial overhaul he had originally planned. Indonesian dollar bonds posted the biggest gains in emerging markets after the nation’s economic growth beat forecasts. Greece, where economic reforms are in full swing, was in focus after Scope Ratings raised the nation’s debt to investment grade. Romania was set to announce its monetary-policy decision.
August is typically a month of high volatility in emerging markets, as many traders go on holiday and this year has been no exception so far. A downgrade of the US by Fitch Ratings set a bearish tone last week, exacerbated by data showing the unemployment rate continues to ease. Investors were split on whether or not the data would mean the Federal Reserve can finally call an end to its rate-hiking cycle.
Emerging-market stocks posted their biggest weekly decline since June 23, while currencies witnessed their worst week since early February. Bonds were dragged lower by increasing bets that any upside from rate cuts are already in the price.
All eyes are now on Thursday’s US inflation data, with economists projecting a tick-up in prices led by food and energy. China will publish its consumer-price growth figures the day before, but the country’s problem is deflation rather than price growth. In fact, forecasts suggest a wide-ranging slowdown in the Asian economy including in its credit growth and trade.
A glimpse of China’s pain was evident in its property and short-term financing sectors last week. Despite increased policy support, new-home transactions tumbled the most in a year in July. Local-government financing vehicles were defaulting on commercial-paper loans by a record amid a funding squeeze. A rare case of LGFVs facing bankruptcy proceedings was also seen.
Bloomberg’s calculation of last week’s flows into emerging-market exchange traded funds, typically released at 6 a.m. New York time, may give a sense of how much the sentiment has been impaired by recent news flow.
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