Global Market Dynamics: Emerging Markets, Policy Shifts, and Debt Restructuring

Emerging markets faced a tough start to the week with mixed performances in stock and currency indexes. China's bonds saw gains due to a surprise central bank decision, while Ukraine's dollar bonds surged post-debt rework. Key market movements were influenced by elections, policy announcements, and fiscal expectations.

Stocks and currencies in developing markets started the week on a dour note. China's bonds edged up following a surprise central bank policy decision, and Ukraine's dollar bonds advanced after a preliminary debt rework deal. The MSCI index tracking equities in emerging markets dropped to a near one-month low, continuing the previous week's pullback, notably affecting tech-heavy indexes in Taiwan and South Korea, which were down 2.6% and 1.1%, respectively.

The MSCI index logged its steepest weekly loss in nearly two months last Friday after two-straight weeks of gains. An index tracking currencies eased 0.1% against the dollar to a more than two-week low as markets digested U.S. President Joe Biden's decision to not seek re-election. Despite this, Mexico's peso strengthened by 0.5%.

Yields on Chinese bonds slipped between 2 and 4 basis points across the curve after the People's Bank of China lowered a key short-term policy rate and its benchmark lending rates. 'While today's rate cuts offer some reassurance that policymakers are being responsive to the recent loss of economic momentum, the heavy lifting will need to come from fiscal, not monetary, policy,' said Julian Evans-Pritchard, head of China economics at Capital Economics.

In South Asia, Indian equities inched 0.1% lower, and the rupee hit an all-time low of 83.67 to the dollar, as caution prevailed ahead of a budget announcement on Tuesday following recent elections. A finance ministry survey projected India's economy to grow between 6.5% and 7% this year.

Elsewhere, Turkish equities were up 0.6% ahead of a central bank monetary policy decision later this week. Moody's upgraded Turkey's ratings, citing governance improvements and a tighter monetary policy stance. President Tayyip Erdogan suggested that a potential change in the U.S. administration after November's election could benefit Turkey's defense industry.

The yield on Ukrainian dollar bonds maturing in 2034 fell by 4.2 basis points after the country announced a preliminary deal to restructure $20 billion in debt. Poland's zloty gained 0.1% against the euro, with central banker Iwona Duda indicating that a discussion on interest rate cuts might start in the second half of next year.

Attention was also on efforts to end the prolonged Middle East conflict, as Israeli Prime Minister Benjamin Netanyahu visits Washington this week. The shekel firmed 0.5%.

(With inputs from agencies.)