Emerging-market assets climb as PPI data fuels bets on Fed cut

1 month ago 34

Emerging markets, data

By Godwin Anyebe

Stocks and currencies in developing economies advanced recently after the latest US data fueled wagers that the Federal Reserve will start lowering interest rates as early as next month.

The MSCI Inc. gauge for emerging-market currencies ended the day 0.1 per cent higher, with the Polish zloty and the Hungarian forint leading gains among peers. Stocks rose for a third straight session, closing at the highest in almost two weeks. US Treasury yields fell, and riskier assets got a fresh boost as investors welcomed a smaller-than-expected increase in US producer prices for July.

“Caution is needed because volatility does not seem to cease,” said Juan Perez, director of trading at Monex USA. “The PPI gave us at least a clue that inflationary pressures are certainly easing.”

Traders are now shifting their focus to a key consumer inflation report for further signals about the path for Fed easing. In the wake of last week’s market turmoil, fund managers will scour the releases for extra clues on whether policymakers have room to secure a soft landing for the economy.

CPI will undoubtedly generate higher FX volatility,” said Francesco Pesole, an FX strategist at ING Bank NV in London. “We are generally optimistic that data will fall in line with consensus expectations and continue to endorse market pricing for 100 basis points of Fed cuts by year-end.”

Meanwhile, geopolitical tensions increased after the US said an Iranian attack on Israel could be imminent. Fitch Ratings downgraded Israel’s sovereign debt by one notch, to A from A+, while keeping a negative outlook, as the continued military conflict weighs on the country’s public finances.

In debt markets, Dominican Republic bonds maturing in 2060 were up as much as 1.6 cents on the dollar, according to indicative pricing data collected by Bloomberg. The country’s government announced it seeks to increase transfers to the central bank.