Traders are keeping bets of a Fed rate cut alive this month
by Malavika Kaur Makol and Andras Gergely
Emerging-market stocks and currencies started December on a firmer footing amid extended bets on a rate cut by the Federal Reserve this month.
An MSCI gauge of developing-market currencies and equities each rose as much as 0.1%, with the stock gains led by Alibaba Group Holding Ltd. and Tencent Holdings Ltd. That follows the first monthly decline of 2025 in November in the index of EM shares, as stretched valuations in the artificial-intelligence sector curbed a rally triggered by monetary easing prospects in the US.
Traders are keeping bets of a Fed rate cut alive this month, even as they await a slew of data this week including initial jobless claims and headline industrial output data for clues on the US economy. President Donald Trump said Sunday he has decided on his pick for the next Fed chair, which further supported assets from developing markets. Kevin Hassett, Trump’s chief economic adviser, is seen as the frontrunner for the job, with Trump making clear he expects his nominee to deliver interest-rate cuts.
“The end of the US data hiatus has solidified expectations for another rate cut in December, despite the FOMC’s increasing uneasiness about inflation persistence,” analysts including Themistoklis Fiotakis at Barclays Bank Plc wrote in a note. “In all, the broader backdrop is supportive for risk sentiment, and it is no wonder that cross-market vol continues to grind lower.”
Emerging-market assets are set to wrap up a banner year, with December being a seasonally stronger month for stocks, currencies and debt. Strong performance by bonds from the developing world, along with rising concerns around fiscal backsliding in developed markets have led to the start of global debt investors viewing select emerging markets as a safer option.
The Bloomberg dollar index edged lower for a fifth day.
In Europe, the forint hit the strongest since January 2024 against the euro at the start of the week after Moody’s Ratings kept Hungary’s credit rating unchanged at two steps above junk territory late on Friday, averting a potential downgrade. Fitch Ratings is up next with a review of Hungary’s creditworthiness due on Friday.
Some of Ukraine’s dollar bonds also extended a rally after US and Ukrainian negotiators said they had productive discussions about a framework for a peace deal, though there was no final breakthrough.
The developments around Ukraine are also affecting nearby currencies, with the zloty rising in tandem with the forint on Monday.
“The Polish zloty and Hungarian forint will await more news on the Ukraine story, with fair pricing in our view at this point,” ING Bank strategist Frantisek Taborsky wrote in a note.
Copyright Bloomberg News
