Emerging markets currencies, stocks rise as fear ebbs of aggressive Fed rate hikes

REUTERS: Currencies and stocks in emerging markets bounced on Thursday after the US Federal Reserve struck a less hawkish tone than expected, while China’s yuan was little changed after the country dropped mention of its GDP growth target at a key Politburo meeting.

Stocks jumped 0.6% amid a broad risk-on mood, while currencies firmed 0.2%.

China will try hard to achieve the best possible results for the economy this year, state media said after a high-level meeting of the ruling Communist Party, dropping previous calls that it will strive to meet its 2022 growth target.

In the second half, China should “maintain economic operations within a reasonable range,” Xinhua news agency reported. China’s yuan trimmed some losses to firm 0.2% at 6.75 per dollar after earlier hitting a one-week high of 6.74.

“The 5.5% growth target has been de facto abandoned... Our interpretation of ‘reasonable range’ growth is associated with employment (new job creation, unemployment rate) and inflation targets,” said JPMorgan researchers in a note.

Meanwhile, struggling developer Evergrande Group is selling its Hong Kong headquarters via a tendering process that ended Thursday, a source said, and local developer CK Asset confirmed it has bid for it.

The battered bond market has just started to show signs of improvement in recent days as investors sense support is being pieced together.

China will help property developers by issuing 1 trillion yuan ($ 148.2 billion) in loans for stalled developments as it tries to relieve pressure on the economy, according to the Financial Times.Meanwhile, on Wednesday, in a widely anticipated move, the Fed lifted rates by 75 basis points (bps). Investors sensed a possible slowdown in the pace of hikes, sending the dollar to a three-week low.

A surging dollar in recent weeks has sent emerging market (EM) currencies down 0.6% this month, while stocks have shed 0.5% on warning signs about growth amid intensifying risks of inflation and central banks’ tightening moves.

“(EM equity returns) are likely to remain volatile in the near-term due to continued uncertainty over the global growth outlook,” said Regis Chatellier, director of EM strategy at Oxford Economics.

“However, elevated commodity prices, tightening cycles close to peaking, improved fiscal predicaments and increasing Chinese stimulus should support EM growth going forward.” Turkey’s central bank raised its year-end annual inflation forecast to 60.4% from 42.8% three months ago, and lifted its end-2023 mid-point forecast to 19.2% from 12.9%, a presentation by Governor Sahap Kavcioglu showed.