A slide in China stocks on falling factory prices led declines in emerging market stocks on Wednesday, as investors await U.S. inflation data to make bets on the Federal Reserve’s tightening path.
Emerging market currencies bided time against a steady dollar. U.S. headline inflation, the gauge the Fed looks at, is seen declining month-on-month and falling to 8.7% from a year ago, while core inflation is seen rising year-on-year. But given the figures will still be far above the Fed’s target rate of 2%, and given the strong demand in the labour market, analysts do not expect the data to change the Fed’s stance.
“While these results point to inflationary pressures easing in the long term, we still expect the Fed to continue to hike rates and remain focused on driving down inflation,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. Investors are increasingly pricing in the possibility of another 75-basis-point hike in September.
Chinese blue-chips slipped more than 1% after a decline in the country’s factory-gate inflation raised worries about falling demand as the economy struggles to come out of COVID-19 led hit. In Hong Kong, a 2.8% slip in tech stocks, sent the broader index 2.0% lower. Thai shares and the currency fell after the central bank delivered its first rate hike in nearly four years.
Stocks across Asia lost, with sentiment spilling outside the continent. South African shares dropped 1.3%. In central and eastern Europe (CEE), oil supply worries pressured assets. Hungary’s stock index recovered 1.2% following a 3% plunge on Tuesday triggered by Ukraine halting Russian oil pipeline flows to parts of central Europe on a payment issue.
Other CEE bourses fell, with Polish and Romanian stocks down more than 1%. Among currencies, Hungary’s forint extended its slide against the euro, down another 0.8%. The Czech crown rose 0.4% thanks to central bank support.
Data showed Czech inflation gained pace in July to 17.5% year-on-year, but was less than the central bank had forecast. This comes after the central bank had held the key interest rate steady at its previous meeting. Given the increasing downward pressure on the crown, the market is likely to insist on the central bank hiking its key rate further at the end of September, said Antje Praefcke, FX and EM analyst at Commerzbank.
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