EMERGING MARKETS-Muted before U.S. inflation as Chinese property woes

On Oct 13, 2021

* South African rand outpaces EMEA peers

* Chinese property-linked assets tumble

* CEE currencies flat

By Ambar Warrick

Oct 13 (Reuters) – Most emerging market stocks and currencies moved little on Wednesday as investors awaited U.S. inflation data, while assets linked to China’s property sector continued their descent on fears over widespread defaults in the sector.

South Africa’s rand rose 0.4%, the most among units in Europe, the Middle East and Africa, as investors began pricing in a possible interest rate hike next month.

Turkey’s lira rose 0.1% from record lows, while the Russian rouble fell 0.3% as inflationary pressures continued to rise.

Investors engaged in cautious trade ahead of U.S. consumer price data due at 1230 GMT, amid mounting concerns over high global inflation.

U.S. treasury yields and the dollar have also risen in recent weeks on expectations high inflation will spur early tightening measures by the Federal Reserve, in turn pressuring emerging market assets.

“It would be hugely premature to expect today’s publication of September inflation data by the Bureau of Labor Statistics to provide a USD-negative effect … our economists expect that the overall rate will not fall further and the core rate will even rise a little,” Ulrich Leuchtmann, head of FX and commodity research at Commerzbank, wrote in a note.

Inflation risks have been growing across the globe in the wake of a post-COVID economic boom, and bubbled to the surface in recent sessions as a spike in oil prices added to the mix.

Chinese real estate stocks fell on Wednesday, as did local and dollar-denominated bonds. High-yield spreads surged to record highs as a string of missed bond payments from China Evergrande Group and its peers brewed concerns over contagion from a debt default.

Onshore bonds issued by developers Shanghai Shimao Co Ltd and Country Garden Properties Group were among the biggest losers on the day, falling between 1% and 4.2%.

An energy shortage in China has also dented sentiment in recent sessions, with disruptions in the country’s factories affecting the global supply chain.

Still, better-than-expected trade data from China helped calm some fears over slowing economic growth in the country. Chinese stocks rose for the day, helping the MSCI emerging market index add 0.4%.

In central Europe, the Czech crown was flat to the euro as central bank ratesetters offered contrasting takes on the speed at which borrowing costs should increase, as the country grapples with high inflation and a fragile economic recovery.

The Hungarian forint and the Polish zloty also traded sideways.

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

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For CENTRAL EUROPE market report, see

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For RUSSIAN market report, see (Reporting by Ambar Warrick; Editing by Krishna Chandra Eluri)