EMERGING MARKETS-Surge in U.S. yields drives emerging markets into a tailspin

Reuters  | Oct 04, 2018 15:10

EMERGING MARKETS-Surge in U.S. yields drives emerging markets into a tailspin

By Sruthi Shankar and Aaron Saldanha

Oct 4 (Reuters) - Emerging market assets fell across the board on Thursday after a surge in U.S. bond yields dimmed the attraction of high-yielding currencies and stocks, with the Indian rupee sliding to a new record low.

A booming U.S. economy has prompted multiple interest rate rises by the U.S. Federal Reserve this year, boosting the dollar and sending Treasury yields to multi-year peaks. FRX/ US/

The MSCI index for emerging currencies .MIEM00000CUS fell about 0.6 percent, headed for its worst day since Aug. 13.

Emerging stocks .MSCIEF dropped nearly 2 percent, set for their worst day in more than six months led by declines for India's main stock indexes .BSESN .NSEI .

Main stock indexes in South Korea .KS11 , Russia .IMOEX and Turkey .XU100 all weakened.

"A simple dynamic is playing out in the global economy right now - the U.S. is booming, while most of the rest of the world slows or even stagnates," said HSBC economist Kevin Logan.

"A Federal Reserve that is raising rates to prevent the U.S. economy from overheating is constraining the policy options of countries where financial conditions are tightening and trade tensions intensifying."

Russia's rouble RUB= weakened 0.6 percent, despite oil prices holding near four-year highs.

Britain accused Russian military intelligence of directing a host of cyber attacks aimed at undermining Western democracies by sowing confusion in everything from sport to transport and the 2016 U.S. presidential election. correlation between rouble and oil has now lessened... it is a bit more tied up with general EM risk sentiment tied into the biggest drivers – any kind of news on the sanctions front," said Paul Fage, senior emerging markets strategist at TD Securities in London.

The Turkish lira TRY= continued its slide a day after data showed annual inflation surged to nearly 25 percent in September, its highest level in 15 years.

The Indian rupee INR= plumbed record lows to hit 73.8125 to the dollar. Rising oil prices have added to the currency's woes, with investors raising bets that the central bank would hike interest rates on Friday more aggressively than earlier expected. losses came despite early intervention by the central bank to stop the rupee from hitting 74 per dollar, a trader said. European currencies also came under pressure against the euro, with Hungary's forint EURHUF= leading losses in the region.

Polish zloty EURPLN= was seen making little headway after the central bank governor Adam Glapinski reaffirmed that he saw no need to change interest rates until the end of 2019. The bank kept borrowing costs at a record low of 1.50 percent on Wednesday. GRAPHIC on emerging market FX performance 2018, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance 2018, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB

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