Emerging Markets Face Weekly Losses Amid US Interest Rate Uncertainty

Emerging market stocks and currencies were set for weekly losses due to U.S. interest rate uncertainty, election outcomes, and weak Chinese economic data. Investors await April PCE index data for clues on U.S. monetary policy. The MSCI EM equities index dipped, and South Africa's rand and bonds were notably affected.

Emerging market stocks and currencies were on track for weekly losses, strained by uncertainty around U.S. interest rate path, election outcome in some of the biggest economies around the world, and weak economic data from China.

Investors are awaiting April data on the U.S. personal consumption expenditure (PCE) index - the Federal Reserve's preferred inflation gauge - for fresh clues on when the U.S. central bank will start easing its monetary policy. "The PCE data are likely to test markets' pricing of a higher-for-longer stance," analysts at ANZ Research noted.

"Improvements in the April CPI data suggest that the PCE price deflator data will continue to point to disinflation. If the data are in line with these estimates, it would indicate that the improvement in inflation towards target is intact." A surge in the U.S. Treasury yields this week put pressure on risky emerging assets after a surprise uptick in U.S. consumer sentiment in May dimmed hopes of rate cuts this year.

The MSCI's EM equities index dipped 0.7%, languishing near a one-month low and on course for a 2.9% weekly drop. Asian bourses including those in Hong Kong and Indonesia were among the top drags during the week. A widely watched index of EM currencies slipped 0.1% and looked on track for its worst weekly performance since April 8.

With the dollar on the front foot, South Africa's rand slipped to a five-week low on fears the governing African National Congress (ANC) could form a coalition with radical parties after this week's election roiled markets. Prices of South Africa's main internationally traded bonds fell as much as 1.3 cents on the U.S. dollar. The fall was the third in a row and left the bonds at their lowest level in almost a month.

Investors are awaiting the final phase of voting in India and presidential election in Mexico over the weekend to gauge the political paths in one of Asia and Latin America's largest economies. Emerging market debt outflows resumed in the week to Wednesday at $1.1 billion and EM equities outflows stood at $40 million, Bank of America said on Friday, citing figures from data provider EPFR.

China's yuan weakened after an official factory survey showed the country's manufacturing activity unexpectedly contracted in May, signalling the world's second-largest economy was struggling to get back on its feet. Meanwhile, Saudi Arabia's government filed papers to sell a new stake in state oil giant Aramco that could raise as much as $13.1 billion, a landmark deal to help fund Crown Prince Mohammed bin Salman's plan to diversify the economy.

HIGHLIGHTS: ** US-China meeting, Marcos speech in spotlight at security summit

** Foreigners pulled money out of EM portfolios in April after five months of inflows For TOP NEWS across emerging markets

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