Emerging Assets Tumble as U.S. Jobs Data Back December Liftoff

  • Currencies extend slump as stocks pare weekly advance
  • South Africa's rand slumps to record after payrolls report

Emerging-market currencies sank to a one-month low and commodity producers led stocks lower as better-than-forecast U.S. employment growth supported the case for the Federal Reserve to increase the near-zero interest rates that have propped up demand for riskier assets in developing nations.

Futures traders see the odds of a Fed move in December at 68 percent, up from 56 percent on Thursday, after the payrolls report was released. At least 10 exchange rates from Turkey’s lira to the Russian ruble tumbled a minimum of 1 percent versus the dollar. South Africa’s rand slumped to a record. Taiwan’s benchmark equity gauge dropped from the cusp of a bull market after Acer Inc. reported a quarterly loss. Brazilian stocks plunged as disappointing corporate earnings underscored the deepening recession in Latin America’s biggest economy.

American employers added 271,000 jobs last month, surpassing all estimates in a Bloomberg survey of economists. Improving data may push the Fed to consider raising borrowing costs on Dec. 16, seven years to the day since it reduced the target for federal-funds rate to near zero. Higher U.S. interest rates are expected to lure money away from emerging markets as the dollar strengthens.

A December Fed interest-rate increase is “more than on the table, it’s in the territory of a done deal,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said by phone. “Barring a catastrophe on the economic data front, I think this makes a December rate hike almost a foregone conclusion.”

Currencies Weaken

Spiro said he prefers emerging-market assets in central and eastern Europe over Latin America and Asia.

A Bloomberg gauge of 20 developing-nation currencies fell 1 percent Friday, pushing it to a fourth weekly decline. The index has fallen 12 percent this year, touching a record-low in September, amid concern that higher lending rates in the U.S. will reduce the appetite for riskier assets. The MSCI Emerging Markets Index of stocks dropped 1.4 percent to 852.47 on Friday, led by utility and raw-material companies. The gauge rose 0.6 percent this week.

South Africa, Turkey

The rand weakened 1.9 percent versus the dollar. The FTSE/JSE Africa All Share Index dropped 2.1 percent in Johannesburg, the most since Sept. 4. Falling commodity prices are putting pressure on the country’s mining companies to cut production and lay off workers.

“It’s pretty much resource-driven,” said Rob Pietropaolo, a trader at Vunani Private Client Holdings Pty Ltd. in Johannesburg. The Fed’s statements will “create a little more dollar strength, which will then add further pressure on to resources.”

Cie. Financiere Richemont SA tumbled 6.6 percent, the biggest plunge since 2011, after a surprise sales drop in October and the departure of the head of jewelry and watch label Cartier. Lonmin Plc extended its three-day losses to 32 percent as a slump in platinum prices is putting the company on a collision course with the government over potential job cuts.

The Turkish lira weakened 2 percent against the dollar. The currency had been falling even before the jobs report as the euphoria about the AK Party’s majority win in Sunday’s parliamentary elections faded. A squeeze on the currency may tighten if U.S. payrolls data prove strong enough to keep the probability of a Fed rate increase in December above 50 percent, Piotr Matys, a London-based foreign-exchange strategist at Rabobank International, said.

Brazil Decline

The Ibovespa retreated 2.4 percent in Sao Paulo, paring a weekly advance. Iron-ore producer Vale SA slumped 7.6 percent after dams at an iron-ore project it co-owns with BHP Billiton Ltd. burst on Thursday. Credit-card processor Cielo SA fell 1.3 percent after third-quarter results trailed analysts’ estimates. Brazil’s real gained 0.3 percent.

Bernd Berg, head of emerging markets strategy at Societe Generale in London, said he expects the real, rand and lira to tumble against the dollar in the next few weeks.

The ruble fell 1.8 percent, following oil lower and erasing a weekly gain after the jobs report. The Hungarian forint and Polish zloty each weakened at least 1.6 percent against the dollar.

The emerging-market equities gauge has retreated 11 percent this year as a two-year, 165 percent surge in Chinese stocks ended. The gauge trades at 11.2 times the projected earnings of its members. Developing-nation stocks have become increasingly cheaper relative to advanced-nation equities, with their valuation falling from a premium in 2007 to a 30 percent discount today.

In Taipei, the Taiex Index slid 1.8 percent, the steepest loss since Sept. 23. Computer maker Acer dropped 6 percent after posting an operating loss in the third quarter. Chinese shares traded in Hong Kong fell even as mainland stocks extended a bull market.

The premium investors demand to own emerging-market debt rather than U.S. Treasuries narrowed four basis points to 373 basis points, according to JPMorgan Chase & Co. indexes.

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