- MSCI gauge drops for second day on China inflation data
- South Africa's rand, Brazil's real strengthen against dollar
Emerging-market stocks fell for a second day and currencies strengthened as traders weighed signs that the economic slowdown in China is deepening against increasing odds that the Federal Reserve will keep U.S. interest rates lower for longer.
The MSCI Emerging Markets Index dropped 0.6 percent to 849.40. South Africa’s rand strengthened the most in a month against the dollar as a gauge of currencies ended a two-day decline.
Stocks slid as a negative reading for a 43rd consecutive month in China’s producer price index clouded the outlook for corporate profits. Currencies rose after slower-than-forecast U.S. retail sales growth bolstered speculation that the Fed will continue to refrain from raising the near-zero borrowing costs that have buoyed demand for riskier assets. Odds that an increase will be delayed until at least 2016 climbed to the highest this year, futures trading indicates. While the currencies gauge has climbed from a record low last last month, it has still fallen 9.8 percent in 2015.
“It’s back to fundamentals, and they are not strong enough to justify further rebounds,” Martial Godet, the head of Europe and emerging-market equities and derivatives strategy at BNP Paribas SA in Paris, said by e-mail. “It will now depend on a stabilization of macro data in the coming weeks and more accommodation from the central banks to lift markets up.”
A 3.5 percent rebound last week took the valuation of developing-nation stocks above their 10-year average. Price swings in the measure have increased to the widest in almost four years as companies enter the third-quarter earnings reporting season.
The rand gained 2.4 percent against the dollar. Brazil’s real strengthened 2.1 percent. The Turkish lira rose 1.5 percent. The premium investors demand to own emerging-market debt over U.S. Treasuries widened six basis points to 411 basis points, according to JPMorgan Chase & Co. indexes.
Fed futures traders have all but ruled out the chance of the Fed raising interest rates at its meeting this month, while the odds of an increase happening next March have dropped to 49 percent from 66 percent at the start of this month, pushing predictions out even further.
“If the U.S. economy is weaker than people expect, then the Fed’s not going to raise as much or as soon, which gives the dollar room to stay where it is,” Wayne Lin, a money manager at QS Investors LLC in New York, said by phone on Wednesday. “That takes pressure off of emerging-market currencies. I think we’re going to see a little bit of stability for now.”
An index of developing-nation technology companies retreated for a second day after its longest rally since January 2012. Zoomlion Heavy Industry Science & Technology Co. fell 5 percent in Hong Kong after saying it expects a third-quarter loss. Tata Consultancy Services Ltd. slumped the most in a year in Mumbai, falling 4.4 percent after quarterly sales growth missed estimates and Chief Financial Officer Rajesh Gopinathan said growth in the remainder of the financial year will be weaker than in the first half.
The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong declined 1 percent. The Shanghai Composite Index slid 0.9 percent. The weak inflation report follows trade data on Tuesday that showed a wider-than-estimated plunge in imports in September, and increases pressure on the government to add to stimulus to meet its 7 percent growth target for the year.