MSCI index hits peak: MSCI’s emerging market currency index soared to a record high on Monday, boosted by solid risk appetite as investors anticipated an interest rate cut by the U.S. Federal Reserve amid a week of crucial central bank decisions. For the fourth straight session, the MSCI emerging market currency index hit a new high, following its biggest one-day gain since Aug. 19 on Friday. In addition, the MSCI emerging market stock index hit its highest level in more than a week, marking its third straight day of gains.
Speculation on rate cuts
Market expectations suggest the US Federal Reserve is very likely to announce a rate cut on Wednesday, with the reduction speculated to be 50 basis points (bps), according to LSEG data. This follows a 25bp cut by the European Central Bank the previous week. Mohit Kumar, chief European economist at Jefferies, noted: “The Fed is expected to implement further cuts in November and December, each by 25bps. The focus will be on the dot plots and Jerome Powell’s assessment of the economy. The 2024 dot plots are anticipated to be adjusted lower.” Potentially lower US rates could give emerging market central banks more flexibility to ease their own policies and stimulate domestic growth, although this will be influenced by volatility and uncertainty around the US presidential election. Latin America and emerging Europe have led the easing cycle that is already underway in half of the emerging markets monitored by Reuters.
BoJ and BoE Policy Observatory
Other major central banks, including the Bank of England and the Bank of Japan, are also scheduled to announce their monetary policy decisions this week. The Japanese yen has hit its highest level in more than a year in anticipation of these decisions. In South Africa, the rand strengthened 0.7% against the dollar and hit a more than one-week high, while the benchmark 2030 government bond yield fell 4 basis points. Investors are also preparing for a local inflation report later this week. In Hong Kong, stocks reversed early losses to end the day higher as investors assessed a fresh set of disappointing economic data that reinforced the need for aggressive stimulus to boost the economy and achieve its annual growth target. Mainland China’s stock, bond and currency markets were closed for the Mid-Autumn Festival and will resume trading on Wednesday. In Poland, the blue-chip stock index fell nearly 2 percent, dragged down by a 4 percent drop in insurer PZU amid concerns about the impacts of severe flooding. Meanwhile, Sri Lankan and Indonesian stock markets were closed for public holidays. Gulf stock markets also saw gains ahead of the Fed decision, boosted by strong oil prices. Monetary policies in the Gulf Cooperation Council countries often align with Fed decisions, as many regional currencies are pegged to the U.S. dollar.(With contributions from Reuters)
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