Emerging Currencies Sink as U.S. Growth Stokes Fed Rate ConcernBy and
Emerging-market currencies slumped the most in 11 weeks and stocks retreated as accelerating U.S. economic growth rekindled concern that the Federal Reserve will raise interest rates sooner rather than later.
Russia’s ruble led declines, weakening 1.7 percent against the dollar. South Africa’s rand fell 1.3 percent. The real ended a three-day advance as Brazilian policy makers signaled that they’re going to stop raising borrowing costs. A Bloomberg gauge of 20 developing-nation currencies slid 0.6 percent to a record low. The MSCI Emerging Markets Index fell for the sixth time in seven days, slipping 0.7 percent to 894.07, led by a 1.5 percent decline in technology stocks.
Developing-nation assets retreated as data showing that the U.S. economy expanded at a faster pace in the second quarter supported the case for the Fed to raise the near-zero interest rates that have supported demand for riskier assets. Policy makers, considering when to start raising benchmark borrowing costs in 2015, concluded Wednesday that the U.S. is making progress.
“The rate hike is traditionally negative for emerging markets because it curbs the availability of credit and because it strengthens the dollar,” Joseph Dayan, the head of markets at BCS Financial Group in London, said by e-mail. “A U.S. rate hike this year is clearly being priced in. The only question is whether it will happen in September or in December.”
Gross domestic product rose at a 2.3 percent annualized rate, and a revised 0.6 percent advance in the first quarter wiped out a previously reported contraction, Commerce Department data showed Thursday in Washington. Economists surveyed last week said the odds of a rate increase at this meeting were virtually zero, while the chance of a move in September was around 50 percent.
The ruble slid for the sixth time in seven days. The currency surged the most since May on Wednesday after Russia’s central bank halted purchases of foreign currency.
The lira depreciated 0.6 percent to a record low. Turkey’s central bank may publish a technical report sometime after its August interest rate decision outlining the change to a simplified single-rate policy, Governor Erdem Basci said Thursday. The impact on monetary policy should be neutral, “not tightening or loosening,” he said.
The real weakened 1.3 percent as the Ibovespa slipped 0.7 percent. Banco Bradesco SA contributed the most to the Brazilian benchmark’s decline, dropping 2 percent.
The MSCI developing-nation stock gauge has fallen 6.5 percent this year and trades at 11.2 times 12-month projected earnings, data compiled by Bloomberg show. The MSCI World Index has risen 2.9 percent in the period and is valued at a multiple of 16.4.
Samsung Electronics Co. slid 3.8 percent, the biggest drag on South Korea’s Kospi Index, which lost 0.9 percent. Naver Corp. plunged 14 percent in Seoul after operating profit declined.
China’s Shanghai Composite Index slid 2.2 percent. The measure retreated suddenly in the last hour of trading, bemusing investors. It had risen as much as 1.5 percent. A gauge of 100-day price swings rose to its highest level in six years. Thursday’s moves were almost a reverse image of the previous day, when the Shanghai Composite surged in the last hour to close 3.4 percent higher.
Volatility has increased this week as Monday’s 8.5 percent plunge by the Shanghai benchmark gauge shredded a calm induced by unprecedented state intervention. Hong Kong’s Hang Seng China Enterprises Index slid 1.2 percent.
The premium investors demand to hold emerging-market debt over U.S. Treasuries narrowed was unchanged at 364 basis points, according to JPMorgan Chase & Co. indexes.
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