Emerging Market Jitters: Impacts of China Data and Policy Decisions

Risk sentiment in emerging markets was unsettled amid weak economic data from China and pending monetary policy decisions in Turkey and the Czech Republic. The rand dropped to a two-week low due to concerns about cabinet appointments in South Africa. Various currencies, including the koruna, lira, and shilling, experienced fluctuations reflecting different economic pressures.

Risk sentiment was fragile in emerging markets on Thursday after lacklustre data out of China and ahead of the Czech Republic and Turkey's monetary policy decisions, while the rand weakened to a two-week low as key cabinet appointments in South Africa loomed.

MSCI's index tracking equities in the developing world lost 0.4%, with heavy-weight China's blue-chip index and the Shanghai Composite Index dropping 0.7% and 0.9%, respectively, after data showed industrial profits in the world's top consumer rose at a sharply slower pace in May. A currency-tracking index was flat as investors awaited monetary policy decisions from the central banks of Turkey and the Czech Republic.

The koruna slipped 0.1% against the euro, with markets bracing for a smaller 25 basis point (bps) rate cut to 5%, with inflation drawing closer to the central bank's 2% target. The lira traded near record lows at 32.89 to the dollar with expectations that interest rates will be left on hold at 50%. After years of rate cuts that saw the currency plummet, the country shifted to a more orthodox policy last year.

"It's also about what they are doing with fiscal policy because them raising minimum wages and having a lax fiscal policy which also drove inflation quite a lot in the beginning of the year," said Jakob Ekholdt Christensen, senior EM strategist at BankInvest. In South Africa, the rand slipped 1%, and yield on the benchmark bond rose over 15 bps as markets continued to wait for the cabinet unveiling of the country's first coalition government.

Kenya's shilling dipped 0.6%. Rating agency Moody's said President William Ruto's decision to withdraw planned tax hikes would complicate the disbursement of future International Monetary Fund funding. In South Asia, India's benchmark bond was flat, but the rupee inched up 0.14%, among indicators that foreigners were buying the country's sovereign debt ahead of its inclusion in JPMorgan's emerging markets debt index on Friday.

Elsewhere, Zambia's kwacha inched up 0.2% in thin trade after the International Monetary Fund (IMF) said it approved a disbursement of some $569.6 million following a review, and increased its loan to $1.7 billion from $1.3 billion. Bolivia's currency was largely unchanged after a military assault on the presidential palace was stopped late on Wednesday.

Later in the day, markets will also parse comments from U.S. presidential candidates during their first debate ahead of the November elections, to assess their stance on foreign policy. Christensen said focus would be on the candidates' stances on foreign policy and on any signs that their fiscal policy proposals might drive up local price pressures if enforced into the future.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)