(Bloomberg) — Emerging-market stocks and currencies had the best week since July as a labor-market slowdown in the US bolstered speculation the Federal Reserve will hold interest rates steady through year-end, boosting global markets.
Most Read from Bloomberg
Developing nation equities climbed 3.1% this week after two straight declines as investors repriced odds of Fed hikes and assessed fallout from the conflict in the Middle East. A gauge for currencies saw a 0.9% weekly gain.
Both indexes added to gains on Friday after cooling US jobs numbers backed bets that the Fed was done raising borrowing costs in the world’s largest economy. The dollar declined for a third day and US 10-year yields mostly held a drop from Thursday.
“It looks like the hot labor sector can indeed be cooling down after being the beacon of resilience that kept the Fed looking to hike to dent economic demand,” said Juan Perez, director of trading at Monex USA. “If employment starts dwindling, that is when you may notice inflationary deceleration moving into deflationary pressures.”
Mexican stocks rose 3% Friday, the most since November last year, while the peso edged higher, capping its best week since June 2021.
The Colombian peso was the best performing currency in emerging markets, followed by the Hungarian forint and the South Korean won. That’s a sharp turnaround for South Korea’s currency after it fell to the lowest level since November 2022 last month as hawkish Fed bets lead to three straight months of equity outflows through October.
“The data this week and subsequent reduction in rates is good for EM as long as the data doesn’t get too weak. We have a lot of earnings reports in the next few weeks which will shape the path of the market,” said Greg Lesko, a managing director at Deltec Asset Management LLC in New York.
The Israeli shekel has gained 3.9% this week after strengthening beyond 4 against the dollar, on course for its biggest advance since July, with the central bank on guard to rein in excessive moves. US Secretary of State Antony Blinken arrived in Tel Aviv for talks, saying ahead of his trip that Washington is “determined to deter any escalation” in the nation’s war with Hamas.
In Africa, Nigeria’s naira jumped against the dollar on the parallel market and on crypto exchanges on Friday, a day after authorities said they took steps to clear a backlog of matured foreign-currency forward contracts that have hampered dollar inflows.
Concerns that Fed rate hikes could continue into 2024 as part of a “higher-for-longer” pattern in monetary policy have weighed on sentiment in recent months. While those worries may have eased somewhat, investors are seeking more evidence of “a firm peak in US rates” before turning bullish on emerging markets, said Henrik Gullberg, macro economist at Coex Partners Ltd.
“Is the worst behind us?” Gullberg said. “If so, then the market can start price in a global recovery and EM will do well.”
–With assistance from Leda Alvim.
(Updates pricing throughout)
Most Read from Bloomberg Businessweek
©2023 Bloomberg L.P.
