Muted Markets: U.S. Jobs Report & China's Bond Sales Stir Emerging Market Waters

Emerging markets stocks and currencies remained stable on Friday ahead of a key U.S. jobs report, along with speculation about China's potential bond sales and Romania's interest rate decision. Chinese bond yields rose slightly, while MSCI indexes tracking developing economies saw minor gains. A pivotal U.S. employment report may influence future dollar and Federal Reserve interest rate decisions.

Most emerging markets stocks and currencies were muted on Friday ahead of a key U.S jobs report, while investors assessed the possibilities of large-scale bond sales by China's central bank and awaited an interest rate decision out of Romania. Yields on Chinese bonds inched up about 2 to 4 basis points after the People's Bank of China (PBOC) said it had hundreds of billions of yuan worth of bonds, and would sell them depending on market conditions as part of a plan markets see as an effort to cool a bond rally.

Given wider economic issues in the world's second-largest economy, traders have turned to safe-haven bonds, sending yields to record lows, with the yield on China's 10-year bond standing at 2.2%, compared with 4.3% on the U.S. benchmark. "We think the forces pushing down long-term yields are mostly structural and doubt that they will reverse any time soon," said Julian Evans-Pritchard, head of China economics at Capital Economics. "The best that the PBOC can probably hope to achieve is to stabilize yields around current levels for a few quarters, but not indefinitely," he said.

MSCI indexes tracking equities in developing economies inched up 0.1% and were set for a weekly rise of 1.8%. Korea's tech-heavy index rose 1.3% to hit a nearly 30-month high, bumped up by Samsung Electronics 3% jump after the phone maker estimated a more than 15-fold rise in its second-quarter operating profit.

A key U.S. employment report will top the day's agenda later on as it could influence the outlook for the dollar and the Federal Reserve's interest rate path. Most emerging market currencies have been under pressure this year, with their gauge so far down nearly 1%, as their central banks have kicked off monetary policy easing cycles while the U.S. Fed is holding off with cutting its rates.

In central and eastern Europe, Romania's leu was muted against the euro ahead of its central bank's decision, with economists expecting a 25 basis-point cut in the benchmark rate to 6.75%. Poland's zloty edged up 0.1%, after its central bank, which held rates steady earlier this week, said inflation was expected to peak in the first quarter of 2025.

Markets also watched developments in the Middle East, where according to sources Israeli Prime Minister Benjamin Netanyahu decided to send a delegation to resume stalled negotiations on a hostage release deal with Hamas. The shekel strengthened 0.6% and Tel Aviv stocks advanced over 1.5%, while crude prices were flat, with Brent futures nearing $90 per barrel.

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