Trade strains, dollar roil emerging markets


File: President Donald Trump not only accepted Rob Porter's claim of innocence but praised him for doing "a very good job" and offered his wishes for "a wonderful career" ahead.

LONDON - Rattled by trade war fears and steep dollar gains, emerging markets ended the week on a sour note with stocks slipping to more than two-week lows and a clutch of currencies on track for their worst week in years.

MSCI’s emerging market stocks benchmark fell 0.8 percent on a third day in the red, with Chinese mainland stocks suffering while export-heavy South Korea slipped 0.8 percent.

Markets were spooked the heightening prospect of a trade war after a U.S. administration official said President Trump had made up his mind to impose “pretty significant” tariffs on Chinese goods.

READ: Trump prepares to implement China tariffs

Beijing said it was ready to respond if Washington chose to ratchet up trade tensions.

Trump is due to unveil revisions to his initial tariff list targeting $50 billion of Chinese goods on Friday, while a second list of tariffs on $100 billion in Chinese goods is nearly completed.

Emerging assets had already suffered on Thursday, digesting Wednesday’s hawkish outlook from the U.S. Federal Reserve with the dollar racing higher after the European Central Bank signalled on Thursday it would keep interest rates at record lows up to at least mid-2019.

READ: Rand remains on shaky ground

The dollar’s index against a basket of six major peers rose 0.3 percent to 95.111, its highest level since November, after rallying more than 1 percent the previous day.

“The tightening impact on financial conditions of the stronger dollar doesn’t help and I think that is at the centre of all the crises we are now talking about in emerging markets,” said Jim McCaughan, CEO of $450 billion asset manager Principal.

He expected the dollar to continue go “somewhat higher”.

Turkey, which with its large external financing need took centre stage in a recent emerging markets selloff, saw its lira weaken 0.5 percent in a fifth straight day of losses, putting the currency on track for its worst week since the height of the 2008 financial crisis.

Mexico’s peso, a lightning rod for trade sentiment across emerging markets, extended Thursday’s tumble to weaken 0.2 percent - its weakest level in 18 months. The peso is on track for its worst week since 2015.

READ: Comeback-kid: Rand strengthens for second year running

China’s yuan fell to a near two-week low against the dollar after the central bank in Beijing fixed the official midpoint at the lowest in five months.

Russia’s rouble slipped 0.4 percent ahead of a central bank decision. Policymakers are expected to keep rates unchanged despite inflationary pressures following US sanctions.

South Africa’s rand bounced 0.5 percent, clawing back half of Thursday’s losses.

Borrowing costs across emerging markets stayed at their highest in 18 months.