Emerging Markets Rebound as Investors Eye US Inflation Report

Emerging market stocks gained momentum with a 0.4% climb in the MSCI index, driven by investor focus on the US inflation report and upcoming Federal Reserve policy decision. Ghana agreed to a debt restructuring deal, while stocks and currencies in Pakistan and South Africa showed minor gains. Mexican market volatility continued amid political reforms.

Emerging market stocks regained some momentum on Wednesday, with investors zeroing in on a key U.S. inflation report and Federal Reserve policy decision later in the day, while Ghana agreed a debt restructuring memorandum with official creditors.

The MSCI index for EM stocks climbed 0.4%, after three straight sessions of declines, while the currencies gauge was largely unchanged. Investors are focused on a U.S. consumer inflation print, followed by the Federal Reserve's rate decision later in the day, for further clarity on when rate cuts might begin against the backdrop of a still-tight labour market and stubborn price pressures.

"While political headlines are likely to remain abundant, markets will get the chance to return to trading economic fundamentals with a double-header of US CPI and a Fed decision. Overall, we suspect the outcome of both will continue to be bullish for the dollar," a Monex Europe note said. Meanwhile, Ghana's finance ministry said it had reached a Memorandum of Understanding with its Official Creditor Committee to formalise a debt restructuring deal, likely paving the way for the International Monetary Fund's executive board approval of the second review of a $3 billion loan package and the release of the next tranche of $360 million.

Ghana's cedi climbed 0.8% against the dollar. Later in the day, Pakistan's coalition government will present its budget for the fiscal year to June 2025 that analysts expect to set ambitious fiscal targets as it looks to strengthen the case for a new IMF bailout deal.

Pakistan's benchmark stock index rose 0.5% after shedding over 4% in the past seven days. South Africa's rand was up 0.2% against the dollar, with investors scrutinising collaboration between parties trying to form a government of national unity before lawmakers swear the oath of office on Friday.

Leading gains in Central and Eastern European currencies, the Hungarian forint rose 0.4% against the dollar, after losing nearly 3% in a span of three days and hitting a near seven-week low on Tuesday. Romanian inflation slowed more than expected in May, bolstering analysts' expectations that the central bank will begin cutting interest rates at its July policy meeting. The leu , however, was up 0.1%.

Elsewhere, Mexican President-elect Claudia Sheinbaum on Tuesday tried to calm investor concerns over a proposed judicial overhaul that has sharply weighed on the peso, promising the country would maintain the rule of law while saying she planned to push ahead with the reforms. The peso was down 0.3%. Equity markets in Russia and Israel were closed on account of public holidays.

HIGHLIGHTS: ** India central bank likely intervened in NDF to stop rupee from hitting record low, traders

** Nigeria's president says economic reforms will continue despite hardships ** Kenya's cabinet approves sale of its shares in six listed companies