(Bloomberg) -- Emerging-market assets rallied after Federal Reserve Chair Jerome Powell said the time to adjust monetary policy has come, sparking risk appetite in global markets.
The Mexican peso, Brazilian real South African rand led the advance among developing world currencies, climbing at least 1.7% each as the greenback gauge sank to the lowest since January. The MSCI EM stock index reversed losses, rising as much as 0.3% as Powell spoke at the annual Jackson Hole symposium, though end-of-day adjustments left it flat for the session.
Interest-rate swap traders in the US are pricing in a full percentage point of cuts by the end of the year, with the reductions starting next month. Fed easing without a hard-landing of the economy would prompt yield-hungry investors to buy developing-world assets.
“Even though he said the rate path remains data-dependent, the market sees this as a pledge to ease aggressively if needed,” said Win Thin, global head of markets strategy at Brown Brothers Harriman in New York. “Now it all comes down to the jobs data two weeks away, which seems like an eternity.”
Latin American stocks and currencies led the broad emerging-market rebound Friday. The Mexican peso, which had been hammered by local political risk and unwinding of carry trades in recent days, jumped 2.2%.
Powell’s firm tone over rate cuts helped the Brazilian real too, which had been weakening on dovish remarks from the nation’s central bankers this week. The Chilean and Colombian currencies were also among the top performers as commodity prices gained as part of the risk rally.
The rand erased a weekly drop, while Indonesia’s rupiah rebounded after local markets reopened following lawmakers’ decision to drop electoral reform plans that sparked protests.
In credit markets, Argentina’s dollar bonds slipped this week, handing investors losses of 1.3%, while an average of peers returned 0.8%, according to a Bloomberg index.
Investors soured on the debt as President Javier Milei escalated tensions with lawmakers over a measure that would rework how pension payments are calculated. The tweak — overwhelmingly approved by the Senate on Thursday — would increase public spending, throwing a wrench in the government’s efforts to balance its books.
Sri Lanka bonds also slipped for the week as traders feared completion of a debt rework will be delayed by next month’s presidential election.
Monetary policy debates were playing out elsewhere too. Hungary’s Monetary Council is set to meet early next week after more than a year of continuous easing. Prime Minister Viktor Orban’s influential cabinet chief on Friday said the central bank was right in its cautious stance on further rate cuts, despite calls by others for more stimulus.
--With assistance from Kevin Simauchi and Andras Gergely.
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