(Bloomberg) — Emerging-market stocks fell for a fourth-straight session as faster-than-anticipated US inflation data led traders to recalibrate bets on the size of the Federal Reserve interest-rate cut next week.
The stocks of utilities and energy companies pulled the MSCI Emerging Markets Index down 0.4% on the day in the longest losing streak since July. Currencies, however, eked out the first gain in three sessions, pulled higher by a 1.5% rise by the Mexican peso as investors looked past the approval of a controversial overhaul of the nation’s judicial system.
Core consumer prices in the US — which excludes food and energy costs — increased 0.3% in August from the month earlier, Bureau of Labor Statistics figures showed Wednesday. That added to recent data releases that have prompted traders to price in a quarter-point rate cut during next week’s Fed meeting instead of a bigger cut.
There’s a “positive sentiment overall as seems imminent the start of the easing cycle by the Fed,” said Marco Oviedo, senior Latin America strategist at XP Investimentos.
The Philippine peso, the Peruvian sol and the Chilean peso stood out among peers, while the Polish zloty was the biggest laggard across the developing world.
In Mexico, the Senate’s approved the general text of President Andres Manuel Lopez Obrador’s plan to overhaul the country’s judicial system. The constitutional reform proposal, whose core goal is to elect all federal judges by popular vote, brings his party closer to controlling the only branch of government that eluded the outgoing leader during his six-year term.
The peso strengthened against the dollar, partially boosted by Tuesday night’s debate between Vice President Kamala Harris and former President Donald Trump. Her odds of winning the election increased on the betting website PredictIt to 56%, compared with 53% before the debate.
“MXN is rallying despite a key hurdle being reached on the judicial reform in the Senate,” Brad Bechtel, global head of FX at Jefferies Financial Group Inc, wrote in a note to clients. “MXN might also be helped by last night’s debate in which Harris was seen as holding her own against Trump which was a far contrast from Biden.”
It may be short lived. Latin American markets are expected to remain under pressure as concerns over softening global demand has so far outweighed benefits from lower US rates, according to Chris Turner, head of foreign exchange strategy at ING Bank NV.
“The currencies of Colombia, Brazil and to a lesser degree Mexico are getting hit by lower energy prices and investors in the region will have to take a firm view on how far and fast this correction in crude oil prices can extend,” he said. “All in all, we see little respite for Latam currencies this month, even though the Fed will be cutting.”
Elsewhere, Maldives dollar Islamic bonds jumped as the country’s central bank pledged to make a coupon payments due in October. The nation faces a $25 million payment on its roughly $500 million of outstanding sukuk debt, according to data compiled by Bloomberg.
And in Angola, the kwanza fell to its lowest level in 25 years against the dollar as weaker oil prices and debt payments limit the crude producer’s ability to defend its currency.
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