Inflation fears saw emerging market stocks extend declines for a third straight session on Friday, ahead of US payrolls data, with the EM tech sector recording slightly sharper declines.
After US private jobs data jumped more than expected on Thursday, attention turned to official non-farm payrolls data due later on Friday to gauge the strength of the US recovery and the possibility of policy tightening.
An uptick in US Treasury yields overnight in anticipation of the data weighed on global stocks. The EM benchmark fell 0.4 per cent, on track for its biggest daily drop in two weeks, but was up about 1.3 per cent for the week thanks to stellar rises earlier in the week.
“Keeping in mind the blackout period that starts from June 5th ahead of the (US Federal Reserve) meeting, another upside surprise for May NFP could keep the UST yields supported well into Fed’s policy decision on June 16th,” said Maybank strategists, signalling continued pressure for stocks.
China stocks came into focus, with defence and tech firms under pressure, after US president Joe Biden signed an executive order on Thursday that bans US entities from investing in dozens of Chinese companies with alleged ties to defence or surveillance technology sectors.
Russia’s stocks benchmark fell 0.6 per cent, retreating from all-time highs with financial shares leading declines.
Emerging equity funds pulled in $700 million in the week to Wednesday in a seventh straight week of inflows, BofA calculations based on EPFR data showed, while developing market debt funds attracted $1.2 billion.
The dollar edged to a fresh two-week high, keeping currencies in check with South Africa’s rand down 0.3 per cent, while Turkey’s lira extended losses to a fourth straight session. Russia’s rouble rose 0.3 per cent, supported by higher oil prices.
The lira and yuan racked up weekly losses, while most other currencies were set for weekly gains.
Investors will also be watching out for Turkish president Tayyip Erdogan, who is expected to announce later on Friday a new gas discovery in the Black Sea.
If the gas can be commercially extracted, the discovery could transform Turkey’s dependence on Russia, Iran and Azerbaijan for energy imports.
A Reuters poll showed that emerging market strategists were cautiously optimistic that a commodity-linked currency rally would continue in coming months, but a much slower pace of vaccine rollouts will keep high-yield seekers nervous – Reuters
