Emerging stocks stumbled lower yesterday and looked likely to end the week on losses after rising for three weeks in a row, while currencies were pressured by dollar gains and a dive in commodity prices.
MSCI’s emerging equity benchmark fell 1% to a one-week low and is on track for a weekly loss of 1.6% as another Federal Reserve official talked up chances of more than one interest rate hike in the US this year.
The dollar touched its highest level in more than a week.
“Fed members’ comments seem to suggest that an April rate hike is quite possible, which has been the main driver,” said Paul Fage, senior emerging markets strategist at TD Securities.
“The picture is one of dollar strength rather than risk-off sentiment...The market got a bit too dovish for its own good.”
Stock markets across Asia fell, with China mainland stocks closing 1.7% lower on reports that domestic brokerages had resumed short-selling after a long hiatus under pressure from Beijing.
Johannesburg fell 1.5% while Russian dollar-denominated shares tumbled almost 2%, dragged down by oil crashing below the key $40 per barrel mark.
Currencies fared little better, with additional pressure coming from the People’s Bank of China, which set the midpoint rate for the yuan 0.33 lower – the biggest daily weakening since January7.
Russa’s rouble and South Africa’s rand both weakened almost 1% against the dollar.
Turkish stocks fell 0.2% and the lira slipped 0.3% after hitting the weakest level in more than a week against the dollar ahead of a central bank meeting. Shares in Halkbank rose slightly after two days of heavy losses that took its weekly fall to nearly 10%.
Rates are expected to stay on hold despite recent calls from the political side for cuts.
The Turkish policy decision could be Governor Erdem Basci’s last one unless the government awards him another five-year term, though many doubt such a move after Basci angered President Tayyip Erdogan by refusing to cut interest rates.
In Taiwan, the dollar was flat after the central bank cut its policy rate for the third straight meeting to prop up its faltering economy, but said it expects growth to gradually pick up quarter.
Trading was thinning in the run-up to the long Easter weekend that will see markets closed in many parts of the world.