Emerging Stocks, Currencies Tumble on Fed Interest Rate OutlookNatasha Doff and Nguyen Kieu Giang
Emerging-market stocks fell for a 10th consecutive session as data showing strong U.S. payrolls growth supported the case for the Federal Reserve to raise near-zero interest rates that have bolstered demand for riskier assets.
The MSCI Emerging Markets Index dropped 0.6 percent to 982.14, posting the longest streak of losses since November 2013. It closed at the lowest level since March. A Bloomberg gauge of 20 developing-nation currencies fell 0.6 percent, erasing a gain after a Labor Department report showed U.S. payrolls jumped in May by the most in five months. The Fed has said the timing of a rate increase will depend on economic data.
“The markets are bringing forward their expectations for the first rate hikes,” William Jackson, an analyst at Capital Economics Ltd. in London, said by phone on Friday. “If the run of strong U.S. labor-market data continues and we see growing talk of Fed tightening, there are certain currencies that look set to come under further pressure. The Turkish lira and South African rand are the two most obviously vulnerable.”
The rand slumped 1.5 percent against the dollar. The lira gained 0.2 percent after weakening as much as 0.9 percent. Mexico’s peso fell 1.1 percent. Polish bond yields jumped to the highest since September. Stocks in Athens sank the most since January after Greece deferred a debt payment to the International Monetary Fund and rejected demands for more austerity to receive bailout funds.
The 280,000 advance in U.S. payrolls last month exceeded the median forecast in a Bloomberg survey and followed a revised 221,000 April increase. The median forecast called for a 226,000 May gain. The unemployment rate crept up to 5.5 percent as more people entered the labor force, while hourly earnings rose from a year ago by the most since August 2013.
The emerging-markets measure posted a third straight weekly decline, the longest run since October. The gauge retreated 5.4 percent in the last 10 days, paring its 2015 gains to 2.7 percent and taking its valuation to the lowest since March. It trades at 11.9 times the projected earnings of its members, compared with 16.5 times for the MSCI World Index for advanced-nation stocks.
The yield on Poland’s 10-year bonds surged for a fifth day to 3.16 percent. The premium investors demand to hold emerging-market debt over U.S. Treasuries narrowed five basis points to 334 basis points, according to JPMorgan Chase & Co. indexes.
The Ibovespa slid 1 percent in Sao Paulo, led by a 5.2 percent drop in retailer Cia. Hering, on speculation higher borrowing costs will dim prospects for Brazilian consumer companies.
The Athens Stock Exchange General Index dropped 5 percent as Piraeus Bank SA and Eurobank Ergasias SA tumbled at least 10 percent each.
The gauge of Chinese companies traded in Hong Kong lost 1.5 percent, even as the Shanghai Composite Index rose above 5,000 for the first time in seven years. Egypt’s EGX 30 Index and the Czech Republic’s PX Index each fell 1.4 percent each.
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