EMERGING market stocks declined on fresh signs of economic troubles in China in a session marked by low liquidity with the US market closed for the Labor Day holiday.
The MSCI emerging market equities index fell 0.3 per cent on a closing basis, with losses in Chinese blue-chips such as Alibaba Group Holding and Tencent Holdings outweighing a rebound in shares of Taiwan Semiconductor Manufacturing Company.
Monday’s (Sep 2) slide followed data showing Chinese factory activity contracting for a fourth straight month in August, the latest signal that the world’s second-largest economy may struggle to meet this year’s growth target.
In currency markets, the focus is turning to the countdown to US monetary easing, with data set to shape expectations around the magnitude of interest rate cuts, the impact on the US dollar and sentiment towards riskier assets. Reports include US jobs data later in the week.
“US economic growth remains robust, driven by strong consumption, even as disinflation continues slowly but surely,” Win Thin, global head of markets strategy at Brown Brothers Harriman in New York, said. “We are in a Goldilocks moment right now and so we continue to believe the Fed will start cutting rates this month in a very gradual manner.”
The MSCI emerging FX gauge, which tracks total currency returns including interest income, fell 0.1 per cent. Meanwhile, oil was lifted as Libya declared force majeure at a key oil field amid widening shutdowns. Earlier in the session, oil swung between gains and losses amid thin liquidity in markets.
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Latin America
The Brazilian real trimmed losses from earlier in the session, declining despite the central bank’s auction of currency swaps in an effort to curb losses.
Concerns about Brazil’s fiscal outlook intensified after President Luiz Inacio Lula da Silva on Aug 26 announced a plan to increase the number of families benefiting from cooking gas subsidies. The Supreme Court’s recent decision to block users in Brazil from accessing social media platform X also soured sentiment.
“The central bank’s intervention was insufficient for the currency to have a good performance on the back of ongoing fiscal concerns, and overall pessimistic Latam sentiment with political concerns in Mexico,” said Marco Oviedo, a senior Latin America strategist at XP Investimentos.
Mexico’s peso fell as traders wait for the next development in the government’s plan to overhaul the judiciary system. The new Congress that’s set to debate the reform starts works on Monday.
In credit markets, Hungary is offering yen-denominated bonds for the first time since 2022, pushing the government closer to a limit it has imposed on the state’s foreign exchange-denominated debt. BLOOMBERG
