A five-day winning run in emerging market (EM) equities came to a halt on Monday after disappointing growth data from China, while Russia’s suspension of the Black Sea grain deal stoked inflation worries and Turkey’s lira sank to a new low.
The yuan fell 0.3% in offshore trading and Shanghai stocks closed down 0.8%-0.9% as data showed China’s economy grew at a frail pace in the second quarter, raising pressure on policymakers to deliver more stimulus to shore up activity.
GDP grew just 0.8% in April-June from the previous quarter vs economists’ expectations for a 0.5% increase and 2.2% expansion in the first quarter. A slew of brokerages trimmed their China growth forecast for 2023 to 5% after the data.
“Due to the lack of demand in the economy, policymakers will need to step up their policy stimulus effort,” Commerzbank’s head of FX research Ulrich Leuchtmann wrote in a note.
“The People’s Bank of China will likely ease its monetary policy further after July’s Politburo meeting when a broader (but likely targeted) stimulus plan is expected to be announced by the government.”
The data made for a glum start to a busy week packed with EM central bank meetings, with the MSCI’s gauge of EM equities flat after hitting a near one-month high last week and the currencies index slipping 0.2%.
EM stocks posted their strongest weekly performance in eight months on Friday as the dollar slid on growing bets that the US Federal Reserve would soon end its aggressive monetary tightening campaign due to easing inflation.
Further dampening the mood on Monday, Russia said that it had halted participation in a landmark UN-brokered deal, which allowed Ukrainian grain to be exported through the Black Sea just hours after Moscow said Ukraine had attacked the Crimean Bridge.
“Inflation has peaked across Europe, but it may not decelerate as quickly as anticipated if food prices start rising sharply after Russia decided not to extend the grain deal with Ukraine,” said Piotr Matys, senior FX analyst at In Touch Capital Markets.
The Russian rouble slipped 0.4% after blasts damaged the Crimean Bridge and oil prices dipped.
Monetary policy decisions out of Turkey, Russia, SA and China are due later this week, with the former two widely expected to hike rates.
The Turkish lira slid 0.4% to 26.3/$, touching a record low.
Turkey on Sunday raised a tax on petrol to help to fund a 1.12-trillion lira ($42.2bn) increase to its 2023 budget after February’s earthquakes and the May presidential election sent spending soaring. Data earlier showed the Turkish budget deficit widened to 219.6-billion lira ($8.37bn) in June, seven times the deficit a year earlier.
“We expect the CBRT [Central Bank of the Republic of Turkey] to hike rates again on Thursday, lifting the one-week repo rate by 350 bps to 18.50%, while the CBR [Central Bank of Russia] will likely return to hiking rates on Friday with a bold 75 bps move to 8.25%,” Unicredit analysts said in a client note.
“However, both the TRY [lira] and the RUB [rouble] have failed to benefit from the drop in the USD [dollar], remaining close to 26.00 and 90.00, respectively. The RUB might get some short-term relief from the CBR move, but on balance, we doubt that the expected rate hikes will offer much support to either of the two currencies.”
Reuters
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