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Emerging Markets-stocks, Fx Muted Ahead of US Inflation Data, Russia’s Rouble Extends Recovery

 Most emerging market stocks and currencies were subdued on Thursday, as traders braced for a U.S. inflation print to gauge the Federal Reserve’s monetary policy outlook, while the rouble extended its recovery following central bank intervention.

The MSCI indexes for EM stocks and currencies were almost unchanged, with the dollar shedding 0.3%.

Focus lies on the July inflation reading from the United States later in the day, with China’s descent to deflation already denting sentiment and investors seeking concrete government stimulus.

However, China and Hong Kong shares reversed early losses to close higher, as the lifting of a pandemic-era ban on outbound group tours boosted airline and travel-related stocks.

The rouble firmed against the dollar, extending its recovery from a more than 16-month low after Russia’s central bank intervened in the FX market, while effectively abandoning budget rule to stabilise its currency.

At its weakest, the rouble was around 28% weaker against the dollar year-to-date. Many analysts said greater action would still be required to make a significant difference.

Meanwhile, Pakistan’s president dissolved the parliament on Prime Minister Shehbaz Sharif’s advice late Wednesday night, three days ahead of the parliament’s five-year term, to be followed with a caretaker administration to hold new elections in 90 days.

“Starting the election process will be welcomed by investors hoping for prudent economic policy decisions by a technocratic interim caretaker administration and mindful that the IMF deal is a short-term term one and a notionally democratic government will have to be in place to renew it,” said Hasnain Malik, emerging and frontier markets equity strategy at Tellimer.

“For civil society and political risk, the crackdown on Imran Khan and the PTI might make the election look more like a rubber-stamping process by the military elite.”

The rupee was flat against the greenback, while the benchmark stock index was down 0.3%.

Hungary’s forint notched strong gains, up 0.5% against the euro, with the Czech crown see-sawing after data showed headline inflation eased further into single-digit territory in July.

“Inflation is coming down more or less as expected, which should be dovish message for the central bank dealing with the uncertainty about inflation falling towards the 2% target,” ING’s EMEA FX & Fixed Income Strategist Frantisek Taborsky noted.

Further on the data front, Turkey’s industrial production rose 1.6% month-on-month in June, while Egypt’s July annual headline inflation rose to an all-time high of 36.5%, in line with expectations.

Kenya held its benchmark lending rate at 10.5%, while seeking to introduce a new rate corridor of plus or minus 250 basis points around the policy rate.

Within Latin America, traders looked ahead to key rate decisions in Peru and Mexico, after Brazil and Chile recently kicked off monetary policy easing. (Reporting by Ankika Biswas in Bengaluru; editing by Christina Fincher)

Source : Yahoo Finance