(Bloomberg) — A gauge of emerging-market currencies closed at the lowest level in a month after former President Donald Trump doubled down on his proposals to impose tariffs as a way to draw manufacturing into the US.
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The Mexican peso bore the brunt of the selloff as Trump repeatedly mentioned the nation in relation to tariffs. Other Latin American currencies also slumped as concern over growth in China dragged down commodity prices.
The “Trump trade is perhaps back in play,” said Luis Hurtado, a strategist at CIBC in Toronto, “buying dollars in general, and looking for safe havens ahead of electoral uncertainty.”
Volatility is rising across currency markets as Trump’s trade proposals spook investors ahead of the Nov. 5 vote. He defended his bid to dramatically increase tariffs on foreign goods, saying in an interview with Bloomberg News that they are for the “protection of the companies that we have here and the new companies that will move in.”
“The start of the interview exclusively focusing on tariffs and a lot of time spent on Mexico could have increased nervousness,” Hurtado said.
The gauge was already down before Trump’s remarks as traders continued to digest China’s steps to support its property sector and the economy. A gauge tracking developing-world stocks dropped 0.9%, though it gained 0.3% when China is excluded.
“A lot of this is due to disappointment that China did not reveal any new stimulus measures over the weekend to keep this risk rally going,” said Win Thin, the global head of markets strategy at Brown Brothers Harriman & Co. “Oil and copper are taking it on the chin.”
San Francisco President Mary Daly said the US central bank must stay vigilant as inflation declines and the labor market cools, though she expressed optimism that officials could keep the current economic expansion on track.
Elsewhere, traders coming back after a US bond market holiday bought risky dollar debt from the developing world, led by securities from Argentina and Egypt. High-yield spreads over Treasuries narrowed three basis points, while their investment-grade counterparts widened by five basis points, according to JPMorgan Chase & Co. gauges.
China
While authorities in Beijing have unveiled hundreds of billions of dollars in supportive measures for the economy and markets, investors are looking for fiscal steps to reinvigorate consumer spending. This mismatch between expectations and actions has fueled volatility in Chinese stock markets, with wild surges in anticipation of breakthrough policy moves and big selloffs when announcements fall short.
Chinese stocks underperformed their EM peers for a fifth time in the past six days, according to the ratio of the MSCI indexes for both markets.
“Markets will need to see a combination of pointed macro impulses and sound micro reforms that pave the way for a robust recovery,” said Simon Quijano-Evans, chief strategist at Gramercy Ltd. in London. “Investors are looking for policy predictability and transparency in a country that spans the realms of capitalism and state control.”
While the monetary measures have failed to provide a sustained lift to Chinese stocks, they are already dragging on the country’s currency and with it the exchange rates of countries with close economic ties to Beijing. The onshore yuan weakened for the sixth time in the past eight sessions and traded at a one-month low.
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