Emerging-market currencies deepened their slump to record lows and stocks retreated amid speculation that the Federal Reserve will increase U.S. interest rates as soon as next month, curbing demand for riskier assets.
The real weakened for a fifth day as Societe Generale SA said the currency will continue to tumble as Brazil’s struggle to cut government budget deficits makes further credit rating downgrades unavoidable. South Korea’s won ended a two-day gain. Russia’s ruble declined as Brent crude closed below $50 a barrel for a third day.
A Bloomberg gauge of 20 currencies slipped 0.3 percent in its fifth straight decline. The gauge has been breaching record lows since July 23 as signs of a strengthening U.S. economy support the case for the first Fed interest-rate increase since 2006. Fed Bank of Atlanta President Dennis Lockhart said in an interview with the Wall Street Journal that it would take a significant deterioration in economic data to convince him to put off raising rates in September.
“There is a gradual re-pricing on the realization that September is still firmly in play,” Grant Webster, who helps oversee $2 billion in emerging-market debt at Investec Asset Management in London, said by e-mail. “We should continue to expect this daily volatility, in both directions, on limited flows, while the market gets to grips with the likely policy moves by the Fed.”
The currency index briefly swung to a gain after data showed U.S. firms added fewer jobs than analysts estimated in July. A separate release showed the services industry expanded at the strongest pace in a decade.
The MSCI Emerging Markets Index dropped 0.1 percent, led by a 0.8 percent decline in technology stocks. Shares in Shanghai lost 1.7 percent. A gauge tracking developing-nation energy companies increased 0.4 percent.
The real weakened 0.4 percent against the dollar, extending its decline to a 12-year low. The worst economic contraction in 25 years, an escalating political scandal and a pledge by the Brazilian central bank to refrain from increasing interest rates have helped to push the currency down 24 percent in 2015. Vale SA, the world’s largest iron-ore producer, jumped 5 percent, propping up the Ibovespa stock benchmark, which gained 0.5 percent.
South Africa’s rand lost 0.4 percent in its third straight decline. The ruble slumped 0.6 percent. The won slipped 0.7 percent.
MSCI’s developing-nation stock index has fallen 6.7 percent this year and trades at 11.2 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has risen 3.1 percent and is valued at a multiple of 16.4.
The Shanghai Composite Index fell for the fourth time in in five days, dragged down by technology companies. The value of shares traded on the index has fallen 63 percent from this year’s high in June as trading halts, regulatory measures to curb bearish transactions and a suspension of initial public offerings discourages investors.
“Emerging-market assets are trading softer at the moment and I would expect this pattern to continue in the coming weeks,” Michael Ganske, head of emerging markets at Rogge Global Partners, said by e-mail. “I would use the selloff as buying opportunity.”