US rates jitters sink emerging markets
All eyes on Fed and Yellen
EMERGING market assets fell with commodities as expectations for a US interest rate increase grew before a speech this week by Federal Reserve chairwoman Janet Yellen.
The MSCI gauge of developing nations’ shares dropped the most in three weeks after Fed funds futures ended Tuesday showing a 54 percent chance of a US interest rate increase by December. The dollar rose against the euro and the Swiss franc. South Korea’s won weakened after North Korea conducted a missile test, while the rand and bonds declined amid speculation the finance minister would be replaced. Signs of rising stockpiles sent oil and copper lower.
“While political risks do matter, now it is all eyes on the Fed and Yellen,” said William Jackson, an economist at Capital Economics.
Stocks
The MSCI emerging markets index dropped 0.9 percent as of 6.02am in New York, the most since August 3 on a closing basis. The Borsa Istanbul 100 index slid 1.9 percent, the most in a month. The Stoxx Europe 600 index reversed losses to rise 0.4 percent after its biggest rally in more than two weeks.
WPP, the world’s largest advertising company, led a gauge of media companies to the biggest advance on the Stoxx 600. Shares jumped 6.1 percent after it said profit rose 15 percent in the six months to June 30.
Commodity and energy producers fell the most, with Glencore down 4.8 percent after reporting a plunge in first-half earnings. Standard and Poor’s 500 index futures were little changed, after US equities rose 0.2 percent on Tuesday.
Currencies
The MSCI emerging markets currency index fell 0.7 percent. The won weakened 0.6 percent versus the dollar and the rand fell to a three-week low.
The Bloomberg dollar spot index held a three-day gain after traders priced in an increased probability of a rate increase by December.
The JPMorgan Chase gauge of currency price swings was at 10.22, matching the highest since July 26 on a closing market basis.
“Yellen has to take a clear hawkish stance to justify sustained dollar strength beyond this weekend,” said Nizam Idris, the head of foreign exchange and fixed income strategy at Macquarie Bank in Singapore.
“While we expect the dollar to rebound in coming days… the currency could weaken again on even a subtle shift in Yellen’s views.”
Commodities, bonds
West Texas Intermediate crude fell 1.7 percent to $47.30 (R643.19) a barrel in New York after American Petroleum Institute figures showed inventories increased by 4.46 million barrels last week.
Copper slid 0.5 percent to a six-week low after inventories tracked by the London Metal Exchange climbed to the highest level since January.
South Africa’s December 2026 bonds fell by the most this year, pushing their yield up by 39 basis points to 8.88 percent. Turkey’s 10-year yield jumped 6 basis points to 9.85 percent.
The yield on 10-year US treasuries increased by 1 basis point to 1.55 percent, staying in a tight range as investors await Yellen’s speech.” – Bloomberg