Stocks, currencies slip as all eyes turn to U.S. jobs data

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Emerging markets equities fell on Friday, snapping a five-day winning streak, while currencies were broadly flat against a weaker dollar ahead of U.S. jobs data.

Comments from Federal Reserve officials overnight that the U.S. central bank is not nearly finished with its rate hiking cycle sapped risk appetite, with all eyes now on U.S. non-farm payrolls due at 1230 GMT to make bets on the Fed’s rate hike path.

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A Reuters poll predicts 250,000 jobs were created in September after rising 315,000 in August, while the unemployment rate is expected to remain at 3.7%.

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“The momentum is likely to have eased a little but the (U.S.) labor market is likely to be sufficiently tight for the Fed to stick to its plan of continuing to hike interest rates significantly,” said You-Na Park-heger, EM and FX analyst at Commerzbank.

“If, however, the report disappoints the reaction of the Fed members would be decisive.”

In an attempt to curb inflation, the Fed has raised rates by 300 basis points so far this year, lifting U.S. Treasury yields and sending the dollar to two decade highs. Further diverting flows from risky assets are fears of a recession.

MSCI’s index of emerging market shares has lost 27% s far this year and the currency counterpart shed 8%.

On Friday, the emerging market stocks index slid 1.2%, while currencies dropped 0.4%.

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Hopes for a pivot in the Fed’s hawkish stance had boosted risk sentiment at the beginning of this week, putting the stocks index on course to snap a five-week losing streak.

But any further dollar strength is seen as a threat to the emerging market currencies index’s first weekly gain in seven weeks.

Notable moves on Friday were in central and eastern Europe, where the Polish zloty firmed 0.6% against the euro. The zloty had logged its worst session in nearly four months on Thursday as the central bank said further rate hikes would be data dependent. The bank kept its key interest rate unchanged on Wednesday, disappointing expectations for a 25 bps hike.

Hungary’s forint edged up after a three-day losing run.

Elsewhere, Asian currencies were flat to lower against the dollar, while those of Turkey and South Africa were little changed.

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Meanwhile, Pakistan said it “strongly contests” a ratings downgrade by agency Moody’s which cut the country’s sovereign credit rating by one notch further into junk territory citing increased government liquidity and external vulnerability risks in the wake of floods in August. For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

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For RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; Editing by Jane Merriman)