(Bloomberg) -- Emerging-market stocks fell to the lowest level since March as a strengthening dollar and waning consumer confidence in the United States damped investor appetite for riskier assets.
Expectations that interest rates will stay higher for longer in the US, or even increase, have been weighing on stocks for two weeks.
The flight to safety sent MSCI Inc.’s gauge of developing-nation shares lower by around 1% and toward its second month of losses, while a basket of emerging-market currencies traded at the lowest level in two weeks. Currencies extended losses after a report showed US consumer confidence slumped to a four-month low in September.
Federal Reserve Bank of Minneapolis President Neel Kashkari said he expects the US central bank will need to raise interest rates one more time this year if the economy is stronger than expected.
“The appreciation of the dollar across the board is continuing on the back of hawkish remarks by Fed members, who stressed again that US rates are likely to remain on hold for a long period of time,” UniCredit analysts wrote in a note.
Hungary’s central bank reaffirmed a more hawkish tilt in monetary policy after a fifth full-percentage point monthly cut to 13% in the one-day deposit facility. Deputy Governor Barnabas Virag said inflation remains “unacceptably high” and policymakers must be “cautious” at an online briefing on Tuesday.
The easing was expected even as the forint weakened in recent sessions and the central bank in Budapest sparred with the government over Hungary’s deteriorating finances, the outlook for inflation and growth.
Orban Skewers Hungary Central Bank on EU’s Fastest Inflation
The forint initially gained as much as around 0.8% against the dollar, but later reversed gains to trade 0.2% weaker. The standoff among the country’s economic leadership is “negative” for the exchange rate and “the forint is likely to drift weaker in the near-term,” Tatha Ghose, a strategist at Commerzbank, wrote in a note from before the rate decision.
Swap rates and bond yields in Brazil rose after central bank minutes reinforced the message that an acceleration of the easing cycle is unlikely. Brazil kicked off an easing cycle last month and has cuts its benchmark rate by 50 basis points in both August and September to 12.75%.
Above-Goal Inflation Crushes Brazil Hopes for Bigger Rate Cuts
Asian markets were also hit after property developer China Evergrande Group said a unit missed a yuan bond payment, adding to concerns whether President Xi Jinping’s administration can end the housing crisis.
(Updates with move after US data, Hungary central bank decision, Brazil minutes.)
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