Stocks and FX head for weekly losses; Russian central bank in focus

Emerging market stocks and currencies fell on Friday, and were set for weekly losses after a spate of central bank meetings in the past few days outlined the economic threat posed by rising inflation.

MSCI’s index of emerging market (EM) stocks fell 0.6%, while EM currencies inched lower.

The stocks’ index was set to lose about 1.8% this week, while currencies were on track to shed 0.2%. Sentiment towards risk-driven assets was soured as a slew of central banks, including the US Federal Reserve, outlined hawkish measures to control rising prices.

Rising inflation has been a recurring trend across EMs this year, with most central banks acting swiftly to stabilise prices. This week, Hungary, Chile and Mexico raised rates.

Focus now turns to Russia’s central bank, which is widely expected to hike interest rates by 100 basis points to 8.50%, when it meets at 1030 GMT. The rouble was flat to the dollar.

The Russian central bank has been steadily raising rates this year to contain rising price pressures, although recent readings suggested prices may have peaked.

“We would not anticipate much market reaction because if a lower step size were used, it would only be because of a better inflation outlook, and the outlook for the real carry would not change by much,” Tatha Ghose, FX and EM Analyst at Commerzbank wrote in a note.

Still, the rouble and Russian debt could react to any guidance that indicates the central bank’s rate hiking cycle is at an end.

Turkey’s lira dropped 2.5% to a record low of more than 16 to the dollar, after the central bank cut rates on Thursday. The currency was by far the worst performing EM unit this week, set for a loss of 13.5%.

President Tayyip Erdogan’s unorthodox monetary policy has severely damaged the lira this year, as well as Turkey’s financial credibility. Inflation has blown past 20% this year.

“With Erdogan seemingly becoming more entrenched in his anti-interest rate stance the longer the currency crisis lasts, Turkey could be beyond the point of no return,” said Patrick Curran, senior economist at Tellimer Research.

Chinese stocks ended lower as investors fretted over growing tensions between Washington and Beijing, after the US government imposed investment and export restrictions on dozens of Chinese companies. Rising Covid-19 cases in China also rattled markets this week.

Chinese property stocks sank further after Moody’s downgraded Shimao Group and Guangzhou R&F Properties . But Shimao’s bonds surged on reports it would repay debtors.