An emerging-markets selloff deepened amid concern developing economies will face capital outflows and weakening exports once Donald Trump is in The White House. Treasuries capped their worst week since 2009 before a U.S. holiday on Friday.
MSCI gauges of emerging-market equities and currencies sank to four-month lows since the election of Trump, who plans to adopt a more protectionist trade stance while introducing fiscal stimulus that’s seen hastening interest-rate hikes by the Federal Reserve. More than $1 trillion was wiped off the value of bonds this week, something that’s happened only once before in the last two decades, and Bloomberg’s dollar index is headed for its biggest weekly gain since May 2015. Shanghai shares were set to enter a bull market.
The futures market is indicating an 80 percent probability that the Fed will raise borrowing costs next month and swaps trading reflects expectations that the tightening cycle will be faster than was envisaged before Trump’s surprise win in Tuesday’s presidential election. Ten-year Treasury yields have climbed above 2 percent for the first time since January amid speculation the president-elect’s plans to cut taxes and spend as much as $500 billion on infrastructure will widen the U.S. budget deficit and stoke inflation.
“Rising U.S. yields will cause volatility in capital flows into emerging markets, and with the Fed still likely to hike rates in December, the risk is for further outflows,” said Khoon Goh, head of Asian research at Australia & New Zealand Banking Group Ltd. in Singapore. Trump’s plans to revisit trade agreements is “is also a factor,” he said.
Stocks
The MSCI Emerging Markets Index dropped 1.4 percent as of 1:38 p.m. Tokyo time. The Jakarta Composite Index tumbled by the most in a year and the Philippine Stock Exchange Index was headed for its biggest loss since January. Benchmarks in Argentina, Mexico and Brazil plunged more than 3 percent on Thursday.
The Shanghai Composite Index gained 0.6 percent to 3,191, taking the advance from its Jan. 28 low to more than 20 percent. This quarter’s rally has been led by commodity producers and construction companies as the government boosts spending to bolster growth, driving raw-materials prices higher as cities including Shanghai unveiled curbs to cool the housing market. Friday is Singles Day, the Chinese e-commerce event that has morphed into the biggest online shopping event in the world.
“Liquidity is abundant and property curbs will prompt more money to flow into stocks, which look undervalued relative to homes in large cities,” said Li Jingyuan, general manager at Shanghai Bingsheng Asset Management. The benchmark gauge “may go as high as 3,900,” Li said.
Futures on the S&P 500 Index fell 0.2 percent, after the underlying benchmark capped a 4 percent weekly advance, its best performance in two years. U.S. banks and health-care shares surged last session on bets a Trump administration will roll back regulatory scrutiny of the industries. Industrial shares rallied, while utility and real estate stocks tumbled as a rout in bonds pushed yields higher, damping demand for the shares’ relatively high dividend payouts.
Currencies
The MSCI Emerging Markets Currency Index fell 0.3 percent. Indonesia’s rupiah and South Korea’s won sank more than 1 percent versus the dollar to their weakest levels in more than four months. China’s yuan was set for its steepest weekly drop since January, when a series of weaker fixings roiled global financial markets.
Malaysia’s ringgit slipped to its weakest level since January, prompting the central bank to say it may intervene at times of extreme volatility. The nation’s economy expanded by more than economists forecast in the last quarter, data showed Friday.
Latin American currencies tumbled Thursday on concern Trump’s administration could usher in a host of protectionist measures after he campaigned on a pledge to protect U.S. workers and companies from unfair trade deals. A trade war would be a blow to economies such as Mexico, which gets 80 percent of its overseas sales from the U.S., and the nation’s currency has plunged more than 7 percent this week.
The Bloomberg Dollar Spot Index held near an eight-month high, having surged 2.4 percent this week. The yen pared its weekly loss to 3.2 percent.
“The dollar is up against most major currencies supported by an upward revision to U.S. interest expectations and focus on President-Elect Donald Trump’s pro-growth and inflationary economic policies,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia. “Trump’s economic policies will force the Fed to raise the Funds rate at a faster pace than otherwise, which is dollar bullish.”
Bonds
The global debt selloff extended into Friday, with yields on 10-year Australian government notes up seven basis points at 2.58 percent. Similar-maturity New Zealand bonds yielded 3.07 percent, up nine basis points after surging by 22 basis points in the last session.
Yields on U.S. 30-year bonds, which are more sensitive than shorter maturities to the outlook for inflation, have jumped almost 40 basis points since last Friday and a $15 billion auction of the tenor on Thursday showed waning appetite for the securities. The Bloomberg Barclays U.S. Treasury Index slid 1.85 percent this week, its biggest loss since 2009.
“We do view the election of Donald Trump as a game changer,” said Adam Donaldson, head of debt research at Sydney-based Commonwealth Bank of Australia. “The strong bias toward fiscal expansion and inflationary policy represents a stark change to the malaise of recent years. This opens the door for the Fed to hike in December, but also more quickly in 2017 and 2018 than previously expected.”
The market value of Bank of America’s Global Broad Market Index, which tracks more than 24,000 bonds around the world, has declined by $1.14 trillion this week to $48.1 trillion. The only previous week it fell more than $1 trillion was in June 2013, when the Fed was threatening to reduce debt purchases and triggered a bond selloff that became known as the “Taper Tantrum.”
Commodities
A Bloomberg gauge of industrial metals jumped more than 8 percent this week, the best performance in five years, on optimism Chinese demand will firm at the same time as Trump steps up spending on U.S. infrastructure. Zinc is the highest it’s been since April 2011 in London, while copper, aluminum and nickel are all around their best levels in more than a year.
Gold pared its weekly loss to 3.3 percent, having lost ground amid expectations inflation and interest rates are headed higher in the U.S. under a Trump administration. Fed Bank of St. Louis President James Bullard on Thursday signaled a December rate increase is likely.
Crude oil fell 0.3 percent to a one-week low of $44.52 a barrel in New York. Prices may retreat amid “ relentless global supply growth” unless the Organization of Petroleum Exporting Countries enacts significant output cuts, the International Energy Agency said Thursday. The group failed last month to agree on quotas for member countries, something that must be done if proposed reductions are to be finalized at a meeting on Nov. 30.