Stocks track global shares higher, dollar gains weigh on FX

08/07/2024

2 minutes read

2024.08.07 06:35

By Lisa Pauline Mattackal

(Reuters) – Emerging market stocks rose on Wednesday, as global shares bounced back from a brutal sell-off at the start of the week, while a strengthening dollar weighed on local currencies.

Elsewhere, Romania’s leu was little changed against the euro ahead of the central bank’s August monetary policy decision. Analysts polled by Reuters expect Romania’s central bank to cut rates by 25 basis points, the second rate cut in the current easing cycle.

The gains came as European and Asian share markets rose, led by another bounce in the , as the Bank of Japan unexpectedly turned cautious on rate hikes amidst market volatility.

The unravelling of the yen carry trade, coupled with a softer-than-expected U.S. jobs report last week, and fears of a U.S. recession sparked a global sell-off earlier this week with investors dumping riskier assets and moving to safe-havens.

“It’s unclear how long this current bout of heightened volatility will last, yet we’ve seen global equity markets correct this violently before and never in the past have they not eventually rebounded to new highs,” said John Christofilos, chief trading officer, at AGF Investments.

Bourses in Prague, Budapest and Turkey all gained over 1%. Polish stocks underperformed with a 0.2% fall.

However, markets are still assessing the likelihood of a slowdown in the United States and what it means for the Federal Reserve outlook, while growing worries about China’s economic strength continue to overshadow emerging market assets.

Data on Wednesday showing Chinese export growth slowed in July added to concerns about the country’s manufacturing sector.

The dollar rose against the yen on Wednesday, which dropped after an influential Bank of Japan official played down the chances of a near-term rate hike. The greenback’s rise weighed on emerging market currencies, with MSCI’s EM currency index standing flat on the day.

The Indian rupee fell to an all-time low against the dollar ahead of India’s central bank policy decision on Thursday.

The South African rand jumped to 18.352 against the dollar, rising for a second day, while stocks firmed 0.6%.

Currencies across central Europe were broadly steady to stand lower against the euro. Hungary’s forint slipped 0.3%, the Polish zloty fell 0.1%, while the Czech crown was flat.

Central European currencies are facing diverse outlooks for the next 12 months, according to a Reuters poll, with the zloty and crown expected to rise over the next year while the forint and leu are seen falling.

The Kenyan shilling was little changed against the dollar, a day after the central bank cut rates by 25 basis points.

Kenya’s central bank governor said the country had no plans for a $1 billion bond buyback before the year’s end, while forecasting economic growth of 5.5% in 2025, similar to 2024’s 5.4%.

Elsewhere, sources told Reuters that protests had forced the resignations of four deputy governors of Bangladesh’s central bank.

HIGHLIGHTS:

** GRAPHIC-Foreign inflows into Asian equities slow sharply in July, hit by tech slump

** India cenbank asks top banks to refrain from large trading bets against rupee, sources say