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Updated January 8th, 2024 at 16:58 IST

Emerging market stocks hit two-week lows as investors brace for US inflation data

The ambiguity around the pace and timing of interest rate cuts persisted after a batch of mixed US economic data on Friday.

Business Desk
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Emerging market stocks: Emerging market stocks began the week on a somber note, touching nearly two-week lows with China shares leading broader declines. Currencies across the board remained subdued as investors await US inflation data later in the week, seeking insights into the interest rate outlook.

At 0923 GMT, the MSCI's gauge of emerging market stocks slid by 0.7 per cent, mirroring the cautious sentiment prevailing in the market. A basket of currencies dipped by 0.1 per cent against a stable US Dollar.

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The ambiguity around the pace and timing of interest rate cuts persisted after a batch of mixed US economic data on Friday. While a robust jobs report initially dampened early rate cut bets, optimism waned as the Institute for Supply Management's (ISM) survey data revealed a slowdown in the US service sector in December.

Market participants are closely monitoring US inflation data, set to be a key factor influencing the trajectory of rate cuts. Despite the ISM services drop, tightness in the job market may dissuade Federal Reserve members from supporting a first-quarter rate cut, according to ING economists.

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China shares faced the brunt of declines, with the blue-chip index falling 1.3 per cent, reaching a nearly five-year low. Hong Kong shares slipped nearly 2 per cent, and Shanghai's Composite index dropped 1.4 per cent, reflecting weak confidence in China's economy amid rising geopolitical tensions.

In Europe, the Hungarian forint dipped 0.1 per cent, halting a five-day winning streak, while domestic retail sales recorded a 5.4 per cent annual decline in November. The Czech Republic's crown edged up 0.2 per cent, but industrial output fell 2.7 per cent YoY in November.

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Central and Eastern European markets brace for a busy week, featuring major events like the Polish central bank's interest rate decision and inflation data releases from the Czech Republic, Hungary, and Romania.

Turkey's lira weakened to fresh lows, nearing the 30 per Dollar mark, while the South African rand extended declines by 0.4 per cent, following a 2 per cent loss in the previous week.

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A notable development on the horizon is the International Monetary Fund's executive board meeting on Jan. 17 to approve an agreement granting Kenya immediate access to a $682.3 million funding tranche, augmenting its existing lending program by $938 million.

(With Reuters inputs.)

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Published January 8th, 2024 at 16:58 IST

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