(Bloomberg) — Emerging market stocks fell after fresh signs of economic trouble in China in a session marked by low liquidity, while the U.S. market was closed for the Labor Day holiday.
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The MSCI emerging markets stock index fell 0.3% at the close, with losses in Chinese blue-chips such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. exceeded the recovery in shares of Taiwan Semiconductor Manufacturing Company Ltd.
Monday’s decline followed data showing that Chinese factory activity shrank for a fourth straight month in August. This is the latest sign that the world’s second-largest economy could struggle to meet this year’s growth target.
In currency markets, the focus is shifting to the countdown to US monetary easing, with data shaping expectations around the size of rate cuts, the impact on the dollar and sentiment towards riskier assets. Reports include US jobs numbers later this week.
“U.S. economic growth remains robust, driven by strong consumption, even as disinflation continues slowly but surely,” Win Thin, global head of market strategy at Brown Brothers Harriman in New York, said in an emailed note. “We are currently in a Goldilocks moment, which is why we continue to believe that the Fed will cut rates very gradually this month.”
The MSCI emerging currency gauge, which tracks total currency returns including interest income, fell 0.1%. Meanwhile, oil production was halted as Libya declared force majeure on a key oil field amid increasing shutdowns. Earlier in the session, oil swung between gains and losses amid limited liquidity in the markets.
Latin America
Brazil’s real pared losses from earlier in the session, falling despite the central bank’s auction of currency swaps in a bid to curb losses.
Concerns about Brazil’s budget prospects increased after President Luiz Inacio Lula da Silva announced a plan on August 26 to increase the number of households benefiting from cooking gas subsidies. The recent Supreme Court decision to ban users in Brazil from accessing social media platform X has also soured sentiment.
“The central bank’s intervention was insufficient for the currency to perform well, thanks to persistent fiscal concerns and overall pessimistic Latam sentiment on political concerns in Mexico,” said Marco Oviedo, a senior Latin America strategist at XP Investimentos.
The Mexican peso fell as traders waited for the next development in the government’s plan to overhaul the legal system. The new Congress that will debate the reform will start work on Monday.
In credit markets, Hungary is offering yen-denominated bonds for the first time since 2022, bringing the government closer to the limit it has imposed on foreign-currency-denominated sovereign debt.
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