Stocks, FX rattled by weak Chinese data, inflation jitters

PUBLISHED: Mon, 18 Oct 2021 11:50:48 GMT
Ambar Warrick
Reuters
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Key Points
  • Turkish lira hits seventh straight record low
  • Chinese stocks drag MSCI EM index lower
  • Czech producer inflation at over 28-year high
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Oct 18 (Reuters) – Emerging market stocks and currencies fell on Monday as data showing slower-than-expected Chinese economic growth dented sentiment, while investors also fretted over rising inflation pushing up interest rates in the developed world.

MSCI’s index of emerging market (EM) currencies fell 0.1%, as U.S. Treasury yields and the dollar rose, making risk-driven assets appear less attractive.

Recent gains in oil prices on hopes of recovering demand, fed further into inflation concerns.

In Europe, the Middle East, and Africa (EMEA), South Africa’s rand and Russia’s rouble shed 0.6% and 0.5%, respectively, while Turkey’s lira hit a record low for a seventh consecutive session, at 9.2932 to the dollar.

MSCI’s EM stock index fell 0.3%, with Hong Kong and Chinese stocks weighing the most after data showed the mainland economy hit its slowest pace of growth in a year during the third quarter.

China is a major trade destination for emerging markets, which is why an energy crunch in the country, coupled with a burgeoning debt crisis in its real estate sector, has hurt sentiment in recent weeks.

Most stock indexes in EMEA also fell, with Russian stocks 0.8% off recent record highs.

“There are two key downside risks to China’s economic growth… One is a more pronounced deceleration in real estate investment, and the other is disruptions from electricity shortage,” analysts at Credit Suisse wrote in a note.

“The effects of both are almost surely reflected in Q3 numbers,” they said, adding that the impact from the two shocks on annual GDP would be “modest”.

China’s real estate stocks sank 2.6%, as market expectations for a reserve requirement ratio cut were diminished, and as fears of a new property tax grew.

But property-linked bonds appeared to be faring better after a major rout last week.

In Turkey, the lira saw no respite from a more than one-week sell-down after data showed rising inflation and President Tayyip Erdogan dismissed three central bank policymakers on differences over policy views.

Investors now fear a possible interest rate cut this week, despite surging inflation.

In central Europe, the Czech crown fell 0.2% to the euro after data showed Czech industrial producer prices jumped at their highest pace since 1993 in September.

The Czech central bank, along with most of its regional peers, is expected to continue raising interest rates in the near future, to counter a spike in inflation.

For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

(Reporting by Ambar Warrick; Editing by Subhranshu Sahu)

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