Emerging Stocks Drop as Traders Watch China’s Economy

(Bloomberg) — Emerging stock markets declined on fresh signs of economic doldrums in China in a session marked by low liquidity with the US market closed for the Labor Day holiday.

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The MSCI emerging market equities index fell as much as 0.4% on Monday, with losses in Chinese blue-chips such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. outweighing a rebound in shares of Taiwan Semiconductor Manufacturing Company Ltd.

The slide followed data showing Chinese factory activity contracting for a fourth straight month in August, the latest signal that the world’s second-largest economy may struggle to meet this year’s growth target.

In currency markets, the focus is turning to the countdown for US monetary easing, with more data set to shape expectations around the magnitude of interest rate cuts, the impact on the dollar and sentiment toward riskier assets. Traders will look to US jobs data later in the week, which may shed more light on the pace of interest rate cuts.

“US economic growth remains robust, driven by strong consumption, even as disinflation continues slowly but surely,” Win Thin, global head of markets strategy at Brown Brothers Harriman in New York, said in an emailed note.

“We are in a Goldilocks moment right now and so we continue to believe the Fed will start cutting rates this month in a very gradual manner,” he added.

The MSCI emerging FX gauge, tracking total currency returns including interest income, dropped around 0.2%. The Brazilian real declined despite the central bank’s auction of currency swaps in effort to curb losses.

Concerns about Brazil’s fiscal outlook intensified after President Luiz Inacio Lula da Silva on Aug. 26 announced a plan to increase the number of families benefiting from cooking gas subsidies. The Supreme Court’s recent decision to block users in Brazil from accessing social media platform X also soured sentiment.

“The central bank’s intervention was insufficient for the currency to have a good performance on the back of ongoing fiscal concerns, and overall pessimistic Latam sentiment with political concerns in Mexico,” said Marco Oviedo, a senior Latin America strategist at XP Investimentos.

Mexico’s peso also declined as traders await for the next development’s around the nation’s plan to overhaul the judiciary system — the new Congress that’s set to debate the reform starts works on Monday.

In credit markets, Hungary is offering yen-denominated bonds for the first time since 2022, pushing the government closer to a limit it has imposed on the state’s foreign exchange-denominated debt.