US inflation data in focus for stocks

Emerging stocks held at twoweek highs yesterday but gains were limited as investors awaited US inflation data for hints on the pace of Fed rate rises, while the Turkish lira hit a near three-month low after a controversial voting law was passed.

MSCI’s benchmark emerging equities index rose 0.3 per cent in a fourth straight day of gains, but failed to match Monday’s stellar 1.2 per cent rise as investors awaited a crucial US consumer inflation data. Inan Demir, senior emerging economist at Nomura International, said Friday’s US payrolls data had been strongly supportive of risk sentiment, thanks to its “Goldilocks” nature, showing rising employment but muted wage growth.

“But now we have another test of that Goldilocks scenario coming up later today. And I think it’s only natural for the emerging markets to pause for breath as well,” he said. A higher than expected inflation print could encourage the US Federal Reserve to raise interest rates more quickly than expected. Higher US rates reduce the attractiveness of riskier asset classes.

The Turkish lira fell 0.7 per cent against the dollar to its lowest since mid-December after Parliament passed a controversial law revamping electoral regulations. The opposition said the law could open the door to fraud and jeopardise the fairness of 2019 polls. After the voting result was announced a brawl ensued.

Mr Demir said the law’s passage may have contributed to the negative sentiment around Turkey following the Moody’s ratings downgrade last week and the very weak current account numbers on Monday. Turkey also remains one of the most vulnerable emerging markets to Fed rate rises.

Regulatory changes also weighed on Chinese stocks, with mainland shares closing down 0.8 per cent, snapping a three-day winning streak.

China is merging its banking and insurance regulators, giving new powers to the central bank and creating new ministries in the biggest government shake-up in years. It will also form a new competition regulator to improve oversight of M&A and price-fixing.

South African assets were also on the backfoot after a court blocked state power utility Eskom from signing $4.7 billion of renewable energy deals.