Shares, currencies slip as renewed recession worries puncture risk-on rally

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Emerging market shares and currencies fell on Thursday as recession worries rose, following downbeat economic data from the United States, while Turkey’s lira languished in record low territory ahead of a central bank policy decision.

MSCI’s index of EM shares fell 0.2%, on course for its first weekly loss of the year.

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The index has jumped more than 7% since the start of 2023, riding a risk-on rally spurred by easing COVID restrictions in China and hopes that the U.S. Federal Reserve would temper its pace of policy tightening.

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But data overnight showing declining U.S. manufacturing and retail sales renewed recession worries. Hawkish comments from Fed policymakers overnight further fueled fears.

Asian shares fell 0.2% with some tech heavy-weights in the red, while South Africa’s benchmark lost 0.4%, even as it stayed close to all-time highs.

Growth worries saw emerging market currencies unable to capitalize on a steady dollar. The greenback also lost against the Japanese yen as investors bet that the Bank of Japan will not be able to stand pat on its ultra-easy policy for long.

Turkey’s lira dipped 0.2%. The country’s central bank is expected to keep the rate unchanged at 9%, after unconventional policies saw the lira sink 44% in 2021 and nearly 30% in 2022. Inflation eased to 64.3% in December, from over 80%, due largely to base effects.

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Economists say monetary policy in the second half of 2023 will depend on whether an opposition alliance can beat Turkey’s President Tayyip Erdogan in presidential and parliamentary elections likely to be held in May.

“External inflation dynamics may have improved – and this will play into Erdogan’s hands for the upcoming election – but, Turkey’s internal imbalances, monetary policy in particular, remain the same,” said Tatha Ghose, FX analyst with Commerzbank.

“The lira has been somewhat stable in a low-liquidity, disconnected environment, but ultimately this is not compatible with financing a still-wide current account deficit.”

Indonesia, meanwhile, raised its key policy rate by 25 basis points as expected, while Malaysia surprised by holding rates unchanged. The respective currencies had scare reactions to the moves.

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China stocks were muted on Thursday, with trading volumes sliding ahead of the Lunar New Year holidays.

The Czech crown was flat after the government survived an opposition attempt to overthrow it in a no-confidence vote, a widely expected outcome of the motion. For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; Editing by Janane Venkatraman)

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