Brazilian Real Leads Emerging FX Lower Amid Greenback’s Comeback

(Bloomberg) -- Emerging-market currencies resumed their free-fall with traders flocking to dollars despite weak economic data from the US.

Most Read from Bloomberg

• YouTuber Dr Disrespect Was Allegedly Kicked Off Twitch for Messaging Minor

• VW Latches Onto Rivian in $5 Billion EV Pact to Regain Momentum

• Trump Could Actually Lose Florida. Here’s Why.

• Nvidia Rout Takes Breather as Traders Scour Charts for Support

• Julian Assange Leaves Court ‘Free Man,’ Ending 14-Year Drama

The Mexican peso and Brazilian real led the currency gauge lower, extending losses after a lower-than-anticipated print for consumer confidence in the US. Amid Tuesday’s currency weakness, a string of developing nations from South Korea to Dominican Republic and Lithuania are tapping global bond markets as US Treasury volatility abates.

“It may be a dollar recovery,” said Marco Oviedo a senior investment strategist at XP Investimentos in Sao Paulo, referring to the weakness in emerging currencies. The choppy trend is likely to continue until there’s new information, he said, adding inflation and manufacturing data from the US this week could help bring about more clarity.

High-yielding currencies like the Hungarian forint and Polish zloty were among the biggest losers Tuesday, erasing the prior day’s advance. In Asia, where borrowing costs are lower, exchange rates were up for the session.

The South African rand extended loses amid the risk-off mood in global markets, despite the nation’s two largest political parties coming close to an agreement on the number of ministries each would have in the new government. Even if the coalition holds, a rally in the currency is capped as the broad direction of developing currencies is a more important driver, according to Bank of America strategists.

Money managers digested comments from Federal Reserve governors on Tuesday. Lisa Cook said a rate cut is needed “at some point” but the timing is unclear, while Michelle Bowman shares that she sees a number of upside risks to the inflation outlook, and reiterated the need to keep borrowing costs elevated for some time.

Bonds

The United Arab Emirates and Indonesia are also marketing dollar-denominated notes on Tuesday. The Indonesian government is looking to sell five-, 10- and 30-year sukuk bonds, with the 30-year tranche being a green deal. South Korea is returning to the US-currency market for the first time since 2021. The UAE is also selling its first Eurobonds since September, offering investors 10-year dollar debt.

In the secondary market, Egypt dollar bonds led losses among emerging-market sovereigns with 2051 notes dropping over a cent to 76 cents on the dollar, according to indicative pricing data collected by Bloomberg. The pound is trading near the weakest since April as it falls out of favor in Wall Street.

Ecuador dollar bonds jumped, leading gains among peers. Ukrainian bonds extended gains as traders priced in about $1.5 billion in military aid from the EU for the war-torn nation. Colombian bonds also outperformed as the government said it will increase diesel prices for major consumers, reducing a subsidy in a bid to strengthen the fiscal accounts.

Stocks

A gauge of Latin American shares fell, erasing some of Monday’s move higher. Still, a broad index of emerging-market stocks, of which Asian equities make up a majority, rose for the first time in three days. Semiconductor companies contributed most to the gains. The average 12-month forecast for profits at EM companies rose to the highest level since September 2022, data compiled by Bloomberg show.

Analysts are stepping up their view of EM corporate performance as an era of high interest rates gives way to expectations for easing in line with the Fed, which may begin cutting interest rates by December.

“The rise in EM earnings is supportive for the market and should continue in an environment of positive macro fundamentals,” said Rajeev De Mello, chief investment officer at Gama Asset Management.

--With assistance from Srinivasan Sivabalan.

Most Read from Bloomberg Businessweek

• How Jeff Yass Became One of the Most Influential Billionaires in the 2024 Election

• Why BYD’s Wang Chuanfu Could Be China’s Version of Henry Ford

• Musk’s Population Obsession Comes With a Dark History

• Corporate Women’s Gains Fall Victim to Anti-Woke Backlash

• Independence Without Accountability: The Fed’s Great Inflation Fail

©2024 Bloomberg L.P.