(Bloomberg) -- Emerging-market stocks and currencies climbed Wednesday Jerome Powell signaled that the Federal Reserve could cut rates as soon as its next meeting in September.
MSCI’s index for developing currencies closed 0.2% higher, while stocks ended the day with a 1.2% gain, after Powell told reporters that a rate cut “could be” on the table in September, boosting appetite for risk assets. The comments came after the Fed kept rates unchanged.
“Chairman Powell’s indication that the Fed could begin cutting rates as soon as next meeting should add fuel to EM’s current run,” said Malcolm Dorson, senior portfolio manager for Global X Active EM ex-China, Active India and Active Brazil funds.
Dorson expects Latin America to extend its own easing cycle once the Fed begins cutting. Asian countries may soon follow too.
In Latin America, Colombia delivered a half-percentage-point rate cut Wednesday, reducing the key rate to 10.75% in a region that has already moved toward easing. Central bankers from Brazil and Chile are also due to meet today to set rates. Brazil is expected to keep rates steady, while Chile is forecast to cut by a quarter-point.
Israel’s shekel headed for its biggest three-day selloff in two years as traders worried the killing of Hamas political leader Ismail Haniyeh on Iranian soil raises the danger of a broader Middle East war. The country’s dollar bonds were the worst performers in emerging markets, according to data compiled by Bloomberg.
In credit markets, bonds from Venezuela and its state-owned oil company slipped across the curve amid speculation that President Nicolas Maduro may try to bring forward the inauguration of his third term. Maduro also asked Venezuela’s top court to audit the results of Sunday’s presidential election in a bid to legitimize his victory, despite the opposition’s claim it has proof that he stole the vote.
In Sri Lanka, the International Monetary Fund will conclude its visit to Colombo on Aug. 1, as the country awaits its decision on whether a deal with private creditors is compliant with an analysis of debt sustainability.
--With assistance from Jorgelina do Rosario and Carolina Wilson.
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