Oct 27 (Reuters) – Emerging market stocks and currencies broadly recovered on Friday, ahead of a highly anticipated U.S. inflation print that could set the tone for monetary policy in the world’s biggest economy.
The MSCI’s gauge for emerging market stocks .MSCIEF rose 1.1%, while a basket of regional currencies .MIEM00000CUS crawled 0.1% up against the dollar by 0843 GMT.
All eyes are on U.S. September personal consumption expenditure (PCE) data, the Federal Reserve’s preferred inflation gauge, that could determine the outlook for Treasury yields and the dollar. The data is expected at 1230 GMT, ahead of the Fed’s interest rate decision next week.
“If the U.S. PCE data are in line with expectations, market expectations that the tightening cycle is over in the U.S. will be cemented,” said Piotr Matys, senior FX analyst at In Touch Capital Markets.
“That said, sentiment towards EM is unlikely to improve significantly and sustainably until the Fed adopts a dovish rhetoric and geopolitical tensions ease markedly.”
Caution also loomed with crude prices spiking as reports that the U.S. military struck Iranian targets in Syria raised concerns of a widening of the Israel-Hamas conflict that could impact supply from the Middle East. O/R
Trade in currencies of top oil importers like India INR=, Thailand THB= and Philippines PHP= was lacklustre.
Giving sentiment a boost was China local data which showed profits at industrial firms extended gains for a second month in September. Chinese top stocks .CSI300 closed 1.4% up and the Hang Seng index .HIS ended 2.1% higher.
Weekly performances are mixed among EM assets, with stocks looking set for a decline of 0.6%, while currencies are headed for gains.
Reports of a $137 billion stimulus plan by China aided risk-taking earlier in the week, amid pressures by U.S. Treasury yields and Middle East jitters.
Portfolio outflows from local currency bonds have also continued and while not accelerating, would limit scope for any rally, Barclays analysts wrote in a note.
Meanwhile, Turkey’s lira traded 28.1 to the dollar after the local central bank said it was taking fresh steps to simplify the macroprudential framework and increase the share of lira deposits, a day after lifting borrowing costs as expected.
The Russian rouble RUBUTSTN=MCX traded at 93.55 to the dollar ahead of a rate decision, where economists largely expect a 100 basis points rate hike, according to economists polled by Reuters. The decision is due at 1030 GMT.
Elsewhere, a poll of analysts expects Pakistan’s central bank to hold rates steady at a meeting next week, as the country awaits its first review following a loan from the International Monetary Fund. The rupee PKR= gained 0.6%.
(Reporting by Johann M Cherian in Bengaluru; Additional reporting by Krain Strohecker, editing by Emelia Sithole-Matarise)
