Emerging-market stocks down for 7 consecutive sessions: What's the reason?
What's the story
Emerging-market currencies and stocks have taken a major hit this week, with MSCI's EM currency index falling by 0.2%, its seventh consecutive session of losses. A similar index for developing-nation stocks also witnessed a sharp decline of 1.4% on Friday. The downturn comes as traders grapple with the Federal Reserve's interest-rate-cut outlook and US President Donald Trump's latest tariffs.
Market response
Mixed signals from Fed officials
The risk appetite for emerging-market assets has been dented this week by mixed signals from Federal Reserve officials and stronger-than-expected US economic data. These factors have complicated the outlook for future rate cuts. A Bloomberg spot dollar index also posted its best week since early August, reflecting the market's response to these developments.
Tariff impact
US tariffs on pharmaceuticals, heavy trucks, furniture worrying
A new round of US tariffs on pharmaceuticals, heavy trucks, and furniture has also affected market sentiment. The possibility of a US government shutdown has added to the uncertainty. Michael Grobler, a fixed-income strategist at Ashburton Fund Managers Ltd, said there are "a plethora of risks," which could restrain risk appetite but not necessarily reverse larger trends in the market.
Market relief
US job market data crucial for traders
Friday's US data, showing controlled inflation and resilient consumers, provided some relief to developing currencies. Next week's data on the US job market will be crucial for traders as they may have to reassess how many Fed cuts to factor in for the remaining meetings in 2025. Citigroup analysts including Luis Costa said markets will trade international risk cautiously without missing appealing emerging-market opportunities.