(Bloomberg) — Emerging-market equities and currencies declined as investors weighed the prospect of higher US interest rates following hawkish comments from Federal Reserve Chair Kevin Warsh.
MSCI Inc.’s gauge of developing-market equities fell as much as 1.4%, the most since Aug. 24, with South Korean and Taiwanese indexes leading losses across the region. An index for emerging market currencies slipped 0.1%, on track for its first decline in nine sessions, with the Indonesian rupiah underperforming peers.
Treasury yields and the dollar mostly consolidated their gains from Friday, when Warsh warned that inflation isn’t meaningfully slowing. His remarks pushed the probability of a September rate hike to around 60%, from about 34% before the speech, according to swaps. Markets will now watch for further clues from the US central bank, while Middle East tensions may add to volatility.
“Macro risks are back in control,” wrote Wee Khoon Chong, an Asia-Pacific market strategist at BNY, in a note. “Higher US yields and renewed Middle East escalation are weighing on regional risk appetite, while weak China PMIs add another growth headwind,” he added.
China’s factory activity improved slightly more than forecast in August, but remained in contraction for a second month. Production and new-order indexes for sectors including electrical machinery and equipment were above 53%, while gauges for industries such as chemical raw materials remained below the 50 threshold separating growth from contraction.
In South Korea, the won was steady after President Lee Jae Myung tapped a career technocrat as finance minister in a surprise cabinet reshuffle over the weekend, apparently aimed at stemming a slide in support.
Markets in the Philippines, Malaysia and Vietnam were closed for public holidays.
Brent crude climbed after the US military on Sunday struck Iranian rocket launchers, the first such action against Iran in more than a month, as President Donald Trump has switched to a campaign to drive Iran to the negotiating table by squeezing its economy.
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