EMERGING MARKETS-Stocks, FX pinned by worries of China lockdown, aggressive Fed

have to count for at least some further escalation of sanctions," said Tatha Ghose, FX and EM analyst at Commerzbank. Russian stocks however shrugged off the new round of sanctions, while the onshore rouble strengthened more than 5% against the dollar, trading comfortably at pre-war levels.

Emerging market assets stumbled on Thursday after an aggressive call for further tightening in monetary policy by the Federal Reserve and a lockdown in China's commercial hub Shanghai constrained risk-taking sentiment.

Asian emerging markets led declines across the developing world after Shanghai, which is already under a city-wide lockdown, reported over 19,000 new coronavirus cases on April 6. Stock gauges in China ended more than 1% lower just a day after bleak economic data. Most emerging markets were spooked about rising COVID-19 cases impacting China's demand and economic outlook as it is a large trading partner to many regions.

The MSCI index of EM stocks shed 1%, falling to its lowest level in more than a week and set for its third straight daily loss. Currencies in emerging markets struggled under the weight of the U.S. dollar, which remained near a two-year high after minutes from the Fed's last meeting revealed that the Ukraine crisis tempered its first interest rate hike since 2018.

The MSCI gauge of EM currencies dipped 0.2% as markets price in a more than 85% chance of a 50 basis point rate hike in May after the minutes also highlighted U.S. central bank's combative stance on inflation. South Africa's rand weakened 0.4% to a dollar, while Turkey's lira declined 0.3%.

While European Union diplomats failed to approve new sanctions on Wednesday, the U.S. slapped a new round of penalties on President Vladimir Putin's two adult daughters, as well as on Sberbank and Alfa Bank, and a ban on Americans investing in Russia. "The extension of full blocking sanctions on the largest Russian banks (with only energy exemptions), sanctions on technology developing companies in Russia, technology export restrictions, ban on all new investments by U.S. entities in Russia ... have to count for at least some further escalation of sanctions," said Tatha Ghose, FX and EM analyst at Commerzbank.

Russian stocks however shrugged off the new round of sanctions, while the onshore rouble strengthened more than 5% against the dollar, trading comfortably at pre-war levels. As the EU prepared to increase sanctions on Moscow on Thursday or Friday, Hungary said it was ready to pay roubles for Russian gas. The country broke ranks with the bloc which has sought a united front in opposing Russia's demand for payment in roubles.

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