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Shares recover cautiously with eyes on Fed minutes, China COVID curbs

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Emerging market stocks recovered on Wednesday, while currencies made small moves with investors keeping a watchful eye on China’s widening COVID curbs as well as for the minutes of the Federal Reserve’s last meeting.

Singapore shares sat out gains across most Asian bourses after the government forecast easing growth in 2023 amid a global slowdown.

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MSCI’s broader index of emerging market shares rose 0.5%, with indexes in Turkey, South Africa and central Europe all in the green.

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Still, caution reigned as Chinese authorities imposed more restrictions on Wednesday to control rapidly rising COVID-19 infections. The International Monetary Fund urged China to boost COVID-19 vaccination rates and give more robust support to its troubled property sector to restore confidence in its economy.

Adding to the cautious tone was the wait for the Fed minutes, due later the day. Fed officials have recently signaled the pace of tightening could be tempered, after four straight 75-basis points interest rate hikes. But they have also said policy will likely stay restrictive for longer.

J.P. Morgan strategists said emerging markets still have macro vulnerabilities, with below-trend growth forecast. The Wall Street bank sees the Fed hiking rates to 5% in 2023 and the U.S. slipping into recession.

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“Inflation is expected to remain a problem for central banks in roughly half of the core EM countries,” J.P. Morgan strategists said, adding they expect EM governments’ debt-to-GDP ratio to rise again and remain a source of vulnerability in 2023.

Against a steady dollar, South Africa’s rand pared gains after data showed inflation unexpectedly increased from 7.5% to 7.6% in October, after falling for two months.

“The rand continues to trade in a tight range against the dollar,” said Shaun Murison, senior market analyst at IG. “The currency is likely to find commitment somewhere between this evening’s Fed minutes and tomorrow’s South African Reserve Bank rates decision.”

“The higher inflation print provides further support to a 75 basis point hike by the South African central bank.”

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China’s yuan fell 0.2%, while Mexico’s peso inched higher. Turkey’s lira was flat. Turkey’s central bank is expected to cut rates by another 150 basis points, to 9%, on Thursday and halt the easing thereafter.

Meanwhile, President Tayyip Erdogan said Turkey will attack militants with tanks and soldiers soon, signaling a possible ground offensive against a Kurdish militia in Syria. For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; Editing by Savio D’Souza)



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