Economy 3 MIN READ

EMERGING MARKETS-Stocks, FX pinned by worries of China lockdown, aggressive Fed

April 7, 2022By Reuters

China stocks lead declines among Asian EMs

MSCI EM stocks index falls for third day

Strong USD weighs on EM currencies

U.S. slaps new sanctions on Russia

By Shreyashi Sanyal

Emerging market assets stumbled on Thursday after an aggressive call for further tightening in monetary policy by the Federal Reserve and a lockdown in China’s commercial hub Shanghai constrained risk-taking sentiment.

Asian emerging markets led declines across the developing world after Shanghai, which is already under a city-wide lockdown, reported over 19,000 new coronavirus cases on April 6. Stock gauges in China .SSEC, .CSI300 ended more than 1% lower just a day after bleak economic data. nL2N2W50BY

Most emerging markets were spooked about rising COVID-19 cases impacting China’s demand and economic outlook as it is a large trading partner to many regions.

The MSCI index of EM stocks .MSCIEF shed 1%, falling to its lowest level in more than a week and set for its third straight daily loss.

Currencies in emerging markets struggled under the weight of the U.S. dollar =USD, which remained near a two-year high after minutes from the Fed’s last meeting revealed that the Ukraine crisis tempered its first interest rate hike since 2018. nL2N2W41S3

The MSCI gauge of EM currencies .MIEM00000CUS dipped 0.2% as markets price in a more than 85% chance of a 50 basis point rate hike in May after the minutes also highlighted U.S. central bank’s combative stance on inflation. FEDWATCH

South Africa’s rand ZAR= weakened 0.4% to a dollar, while Turkey’s lira TRY= declined 0.3%.

While European Union diplomats failed to approve new sanctions on Wednesday, the U.S. slapped a new round of penalties on President Vladimir Putin’s two adult daughters, as well as on Sberbank SBER.MM and Alfa Bank, and a ban on Americans investing in Russia. nL5N2W45N5

“The extension of full blocking sanctions on the largest Russian banks (with only energy exemptions), sanctions on technology developing companies in Russia, technology export restrictions, ban on all new investments by U.S. entities in Russia … have to count for at least some further escalation of sanctions,” said Tatha Ghose, FX and EM analyst at Commerzbank.

Russian stocks .IMOEX however shrugged off the new round of sanctions, while the onshore rouble RUBUTSTN=MCX strengthened more than 5% against the dollar, trading comfortably at pre-war levels.

As the EU prepared to increase sanctions on Moscow on Thursday or Friday, Hungary said it was ready to pay roubles for Russian gas. The country broke ranks with the bloc which has sought a united front in opposing Russia’s demand for payment in roubles. nL2N2W40O5

For GRAPHIC on emerging market FX performance in 2022, see

For GRAPHIC on MSCI emerging index performance in 2022, see

For TOP NEWS across emerging markets nTOPEMRG

For CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB

(Reporting by Shreyashi Sanyal in Bengaluru; Editing by David Holmes)

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