Emerging-market assets rose on Monday as traders recalibrate rate cut bets after disappointing economic data releases is the US and news around China stimulus pledge bolstered Asian stocks and commodities.
US retail sales rose by less than forecast in February and the prior month was revised lower to mark the biggest drop since July 2021. Together with other recent reports, the data bolstered the case for the Federal Reserve to cut rates more aggressively than expected in the months ahead, lifting the currencies of developing countries while bruising the dollar.
A gauge of emerging market currencies advanced as much as 0.2% before trimming some of the gains near the end of the session, while the US dollar retreated to its lowest levels in four months.
“It’s a respite from the pessimism seen last week,” said Juan Perez, director of trading at Monex USA. “A few weeks ago, markets seemed convinced that no cuts would be required by the Federal Reserve, and now the bets have increased because the chances of a recession are also on the minds of every investor and economist.”
Some Latin American currencies received an additional boost as commodity prices rose following China’s pledge to enact measures that would stimulate domestic consumption. Leading gains was the Brazilian real, which jumped as much as 1.3% as the country posted better-than-expected economic data.
The report “suggests that activity remains strong and that the central bank will continue to raise rates. It’s a question of carry,” said Marco Oviedo, a strategist at XP Investimentos.
The news on China also supported emerging stocks, which have climbed nearly 3% in March, putting the MSCI gauge on track for the largest advance in six months.
After a rally fueled by excitement over homegrown artificial intelligence startup DeepSeek, investors have focused on China’s plans to revive consumption. Nascent signs suggest domestic demand is picking up, with retail sales and industrial output rising faster-than-expected for the January-February period.
The latest efforts reinforce China’s priority to boost consumption “could help to broaden out the momentum we have seen in China stocks this year, primarily led by tech,” said Charu Chanana, chief investment strategist at Saxo Markets. “An improving earnings outlook could see broader participation from consumer, travel and health-care names,” she added.
Chinese shares have largely shrugged off the raft of economic data published Monday, though sentiment in the broader emerging market space has improved amid views that President Donald Trump’s tariffs may not be as severe as initially expected. US Trade Representative Jamieson Greer is seeking to bring order to the upcoming announcement of new levies on April 2.
In credit markets, laggards were led by Kenya, after Kenyan authorities and International Monetary Fund officials “reached an understanding” not to proceed with the ninth and final review of its $3.6 billion program.
By contrast, Panama dollar bonds were the best performers in emerging markets on Monday after First Quantum Minerals told lawyers to suspend its arbitration cases against the country.
Meanwhile, a committee of holders of battered Venezuelan bonds welcomed two new members: VR Capital Group and Fidera Ltd, providing a shot in the arm for a group that formed in late 2018.
Source: finance.yahoo.com
