Emerging Stocks Advance as Jobs Report Weakens Case for Fed Move

  • Traders push back Fed rate increase expecations to March 2016
  • Brazil's real rallies as currencies gain for the week

Emerging-market stocks rallied for a third day as data showing slower-than-forecast U.S. employment growth fueled speculation that the Federal Reserve will further postpone increasing the near-zero interest rates that have supported demand for riskier assets.

The MSCI Emerging Markets Index increased 0.8 percent to 804.10, pushing its five-day gain to 1.9 percent. A gauge of 20 developing-nation currencies rose 0.5 percent to record a gain for the week, led by commodity-exporting nations including Colombia, South Africa and Brazil.

Stocks and currencies gained after U.S. Labor Department data showed that payrolls increased less than projected in September while wages stagnated and the jobless rate remained unchanged. The weak report vindicates the Fed’s decision to delay an interest-rate increase last month, and may give impetus to further delays. The bond market is now pushing back expectations for the first increase in almost a decade until at least March, data compiled by Bloomberg show. 

“You have a universally very poor jobs report, on every metric, including a downward revision of August,” Brendan Ahern, managing director of Krane Fund Advisors LLC in New York, said by phone. “For the emerging markets world, which has been so adversely affected by the strong dollar, very weak commodities, and slowing commodity demand out of China, it potentially provides a little bit of a respite from the damage and potential implications of higher rates in the U.S.”

Price Swings

Volatility in the developing-nation stock gauge reached the highest level in four years following the Fed’s September decision to postpone an increase. Traders have been whipsawed by wide price swings in emerging-market stocks as they weighed the potential timing of a Fed move against signs that a slowdown in China is spreading throughout the global economy. Stocks had slumped as much as 28 percent from their April peak through late August amid concern higher U.S. interest rates would lure money away from emerging markets as the dollar strengthens.

The Ibovespa rose 3.8 percent on Friday, the biggest gain in ten months, extending its advance to a fourth day. The real strengthened 2 percent against the dollar. Brazilian assets rallied after President Dilma Rousseff reshuffled her cabinet as she tries to rebuild support in Congress and shore up the country’s budget.

Ruble Slumps

Russia’s ruble weakened 1.1 percent against the dollar. The Micex Index fell 0.9 percent. The U.S. and six other nations backing rebels fighting to oust Syrian President Bashar al-Assad called on Russia to cease attacks against the country’s opposition, saying military assaults that have killed civilians risk fueling extremism. The currency and stocks remained lower as oil, Russia’s biggest export, rose 1.1 percent after reversing an earlier decline.

The emerging-market stock gauge has dropped 16 percent this year and is valued at 10.8 times projected 12-month earnings, near the cheapest level since March 2014, data compiled by Bloomberg show. The MSCI World Index has retreated 6 percent in 2015 and is valued at a multiple of 15.

The Hang Seng China Enterprises gauge in Hong Kong rose after the biggest quarterly loss in four years. Chinese policy makers are increasing targeted stimulus after five interest-rate reductions since November failed to reverse an economic slowdown. Mainland markets remain closed until Oct. 8 for National Day holidays.

The ringgit fell for a second day as concern Malaysia may miss its target of balancing the budget by 2020 hurt a currency already reeling from a worsening slowdown in China and allegations of corruption against Prime Minister Najib Razak.

Capital Flight

Capital outflows from emerging markets are on track to exceed inflows this year for the first time since 1988. Investors are estimated to pull $540 billion from developing markets in 2015, according to the Institute of International Finance, based on data for 30 nations.

The premium investors demand to own emerging-market debt over U.S. Treasuries widened two basis points to 433 basis points, according to JPMorgan Chase & Co. indexes.

Before it's here, it's on the Bloomberg Terminal.