Kevin Simauchi
2 min read
In This Article:
(Bloomberg) -- Developing-nation currencies pared losses as investors weighed the next steps for US interest rates and tensions in the Middle East.
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The MSCI index for EM currencies was down 0.3% after falling as much as 0.5% earlier in the session. Asia led losses, while Latin American currencies from the Mexican peso to the Brazilian real wavered as the dollar erased gains after the Federal Reserve’s Michelle Bowman said she could support lowering rates as soon as July.
Traders are also watching for further developments following US airstrikes on Iran’s nuclear facilities over the weekend. Concern is focused on whether Tehran could close the Strait of Hormuz, a waterway at the mouth of the Persian Gulf that carries about a quarter of the world’s seaborne oil trade.
“The focus this week is on oil prices and FX trades around it,” Luis Estrada, a strategist at RBC Capital Markets, wrote in a note on Monday. “Oil prices between $70–$80 are generally supportive of EM LatAm, but not EMFX as a whole.”
Israel’s shekel and sovereign dollar bonds posted the best performances among emerging peers. Oil, which surged more than 6% earlier, dipped after US President Donald Trump demanded that energy producers push down prices for crude.
So far, oil shipments through the waterway are holding up within norms observed since the start of the month. The Islamic Republic said it would respond to the attacks “proportionately and decisively.”
Debt rush
A lack of clarity about the next chapters of the conflict has helped fuel a rush in debt sales. Sovereign and corporate borrowers are tapping global markets on Monday, locking in financing ahead of any potential escalations in the Middle East.
Mexico is issuing global notes for the third time this year, Kuwait is mobilizing banks for a possible bond sale and Kazakhstan is planning to offer dollar bonds maturing in seven and 12 years. Argentina’s Córdoba province also announced a new sale and a buyback offer. On the corporate front, Brazilian meatpacker JBS SA is selling bonds in a three-part transaction.
In equity markets, a gauge for EM stocks dropped 0.7%, with Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. accounting for two-thirds of its losses. Shares of chipmakers fell after a report the US Commerce Department wants to end waivers used by chip firms to access American technology in China.
