It’s stacking up to be another roller-coaster week for emerging markets, still reeling from a sell-off that drove stocks into a bear market for the first time since March 2016.
Central banks in Turkey and Russia will make key rate decisions, with investors waiting to see how far policy makers will go to defend their weakening currencies. Meantime, the near-fatal stabbing of election front-runner Jair Bolsonaro will remain a focus in Brazil. All that as US President Donald Trump doubles down on his threats to slap higher tariffs on China’s goods.
“The results of upcoming event risks in EM will be binary like the development of trade war or the elections in Brazil, which are difficult to predict,” said Abhishek Kumar, the London-based sector head for emerging markets, fixed income beta, at State Street Global Advisors. “Should emerging-market sentiment worsen, it is likely that countries with higher current-account deficits will hike.”
Stronger-than-expected US jobs and earnings growth data Friday increased the odds the Federal Reserve will raise rates, triggering gains in the dollar and Treasury yields. Investors spooked by the roll-back of crisis-era stimulus will look for fresh clues from the European Central Bank’s meeting Thursday about winding up its bond-buying program by year-end.
Expected swings in emerging-market currencies climbed last week to the highest level since February 2016, according to a JPMorgan Chase & Co. gauge, while a MSCI Inc. index of developing-nation stocks entered a bear market in its worst week since mid-August.