EMERGING MARKETS-Stocks cuts losses on eurozone data cheer

Emerging market shares and currencies cut session losses on Tuesday as better-than-expected business activity data in the eurozone came as a welcome relief amid recession fears. A gas crisis in Europe, China's growth slowdown worries, and fears that the U.S. Federal Reserve may tolerate some level of weakness in the U.S. economy to tame inflation has sapped risk appetite recently, leaving the safe-haven dollar just inches away from its highest in two decades.

Emerging market shares and currencies cut session losses on Tuesday as better-than-expected business activity data in the eurozone came as a welcome relief amid recession fears.

A gas crisis in Europe, China's growth slowdown worries, and fears that the U.S. Federal Reserve may tolerate some level of weakness in the U.S. economy to tame inflation has sapped risk appetite recently, leaving the safe-haven dollar just inches away from its highest in two decades. Some relief came from the eurozone on Tuesday where data showed business activity slowed less than expected in August.

As euro zone stocks rose, counterparts in emerging Europe took them to heart. Polish and Romanian stocks climbed 0.7% and 0.4%, and more broadly, Turkish, South African, and Russian stocks rose around 1% each. MSCI's index of emerging markets shares extended declines to the fourth straight session as Asian shares extended declines, but cut session losses of up to 0.7% to last trade down 0.3%. The currency's counterpart erased losses to trade flat.

Sentiment remained subdued on worries about reduced Russian gas supplies hitting growth in Europe. Hungary's forint hit near six-week lows against the euro and the Polish zloty fell to its weakest in one month. "We are bearish on the Polish zloty and other EM currencies in Eastern Europe, because of this gas crisis," said Jakob Christensen, chief analyst and head of EM research at Danske Bank.

"More fundamentally, the tightening of global financial conditions will slow global growth and hurt business sentiment, more specifically to the EMs." The Indonesian rupiah, meanwhile, jumped 0.3% after the central bank hiked its benchmark interest rate by 25 basis points to 3.75% - the first hike since 2018. The majority in a Reuters poll had expected the bank to hold the rate steady.

Asian central banks have generally lagged emerging market peers in the most recent tightening cycle as they prioritized stimulating growth in a post-COVID environment, over inflation control. In Pakistan, Prime Minister Shehbaz Sharif traveled to Qatar on Tuesday in the hope of generating trade and investment for his cash-strapped country. The visit comes ahead of an International Monetary Fund meeting next week that is expected to approve a $1.2 billion tranche of lending.

Pakistan's April 2024 dollar bond ticked up, while others extended declines and the currency dipped after the central bank on Monday held its main policy rate at 15% after hiking by 125 bps in July. 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 For TOP NEWS across emerging markets

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