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EMERGING MARKETS-Stocks, FX fall as U.S. inflation stokes rate hike bets

EMERGING MARKETS-Stocks, FX fall as U.S. inflation stokes rate hike bets

Reuters · 09/14/2022 05:14
EMERGING MARKETS-Stocks, FX fall as U.S. inflation stokes rate hike bets

Stocks eye worst day since Sept 1

IMF confirms plan to expand aid to tackle food shocks

Armenia, Azerbaijan bonds down amid fresh clashes

India August WPI inflation eases to 12.41% y/y

By Amruta Khandekar and Anisha Sircar

- Most emerging market currencies extended losses for a second day as the dollar rose on higher-than-expected U.S. inflation data that fanned fears of a big interest rate hike week.

MSCI's index of EM stocks .MSCIEF fell 1.8% on Wednesday, its worst day in two weeks, bogged down by a rout in Asian shares. Bourses in Istanbul .XU100, Johannesburg .JTOPI and Budapest .BUX lost between 0.8% and 2.3%.

Currencies .MIEM00000CUS slid 0.5% to a one-week low.

Emerging market (EM) sentiment had been lifted earlier in the week by expectations of a softer U.S. inflation reading and Ukraine's successful counter-offensive against Russia.

But data on Tuesday showed U.S. consumer prices unexpectedly rose in August, dampening the mood.

Markets have fully priced in a hike of at least 75 basis points at the U.S. Federal Reserve's policy meeting week, with a 32% chance of a full-percentage point increase, according to CME's FedWatch tool. FEDWATCH .N

Jitters around domestic inflation, rising geopolitical tensions and monetary policy tightening by central banks have also pressured emerging markets this year, with countries including Malaysia, Poland, Chile and Peru hiking rates.

"Typically, EMs underperform in synchronized tightening, and that coupled with a weaker growth outlook will present a challenging backdrop," said Diana Amoa, chief investment officer of long biased strategies at Kirkoswald Asset Management.

Meanwhile, Azerbaijan and Armenia's bonds both fell to 2-month lows as fighting between the long-term rivals, the former backed by Turkey, and the latter by Russia, continued. XS1678623734=TEXS1207654853=TE

The clashes have raised fears of another major armed conflict in the former Soviet Union while Russia's military is tied up with the invasion of Ukraine.

A fully-fledged war could also destabilise another important corridor of oil and gas pipelines, further stoking Europe's energy crisis worries.

"The geopolitical context ... weighs on risk sentiment across risk assets, and will have very substantial impact (on EMs)," said Phoenix Kalen, global head of emerging markets strategy at Societe Generale.

Elsewhere, India's rupee INR=IN rose 0.4% as government data showed annual wholesale price-based inflation eased to 12.41% year-on-year in August. The figure was lower than the forecast of 13% in a Reuters poll of analysts.

The International Monetary Fund on Tuesday confirmed that it was moving toward expanding emergency financing for countries hit by surging food prices and shortages.

For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB

(Reporting by Amruta Khandekar and Anisha Sircar in Bengaluru, additional reporting by Lisa Pauline Mattackal; Editing by Alexander Smith)