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Emerging Stocks Head to Highest Since 2022 Before CPI Data

Emerging Stocks Head to Highest Since 2022 Before CPI Data

Emerging-market stocks headed for the highest close since June 2022 as traders gear up for this week’s US inflation data to gauge the Federal Reserve’s next steps in monetary policy.

MSCI’s index for EM equities was up 0.7%, buoyed by a surge in Taiwan Semiconductor Manufacturing, which reached a record following news the US plans to award billions of dollars in grants and loans to help the chipmaker build factories in Arizona. A similar gauge for currencies gained 0.2%, trading at the highest in three weeks, with the South African rand, Thai baht and Brazilian real outperforming peers.

Risk appetite in emerging markets was helped by the recent US economic data that signaled receding recession risks, as well as the lack of “new flare ups” in the Middle East, according to Greg Lesko, a portfolio manager at Deltec Asset Management in New York. Comments from former Fed official James Bullard that he expects three interest-rate cuts this year also lifted sentiment, Lesko added.

The optimism with risk assets Tuesday contrasted with a drop in US equities, which were dragged by Nvidia Corp. losses.

Read more: Stocks Fall and Bonds Rise Before Inflation Data: Markets Wrap

EM stocks have been supported by a low volatility environment which ramped up investors’ appetite, according to Marija Veitmane, head of equity markets research at State Street Global. But a surprise with US inflation Wednesday “could produce a spike in volatility and disrupt the strong equity rally, particularly in the countries with weaker economic and earnings fundamentals, like many emerging markets,” she added.

Emerging Market Stocks Climb | Index close at this level would be highest since June 2022

The Thai baht strengthened ahead of an interest-rate decision, where a majority of economists expect a hold. Brazil’s real extended gains and is getting closer to testing the recently breached 5.00 per dollar level, aided by higher commodity prices and lower US yields.

The Turkish lira, meanwhile, lagged peers, falling about 0.8% versus the dollar. The government announced restrictions on exports to Israel after it opposed planned Turkish aid drops over the Gaza Strip and President Recep Tayyip Erdogan faced criticism for not stopping trade with the country.

Read More: Turkey, Israel Swap Trade Threats With Gaza Tension Rising 

In credit markets, El Salvador is pitching investors on its first global bond sale since 2020 after offering to buy back notes due in 2025, 2027 and 2029. Ukraine’s state-run energy company Naftogaz plans to repay its debt to bondholders even as the government is set to enter talks on restructuring its own securities.

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