EMERGING MARKETS-Stocks, FX slump to one-month low on rate worries

Emerging market stocks and currencies dropped to their lowest in a month on Tuesday as heightening geopolitical risks in the Middle East and hawkish remarks from some policymakers prompted safe-haven U.S. dollar buying. MSCI's emerging market (EM) stocks index shed 1.2%, while a gauge of currencies slipped 0.4% by 0930 GMT.

Emerging market stocks and currencies dropped to their lowest in a month on Tuesday as heightening geopolitical risks in the Middle East and hawkish remarks from some policymakers prompted safe-haven U.S. dollar buying.

MSCI's emerging market (EM) stocks index shed 1.2%, while a gauge of currencies slipped 0.4% by 0930 GMT. Both were at their lowest levels since mid-December. Bundesbank president Joachim Nagel was among European Central Bank policymakers that pushed back against expectations of interest rate cuts, adding to uncertainty around the global monetary policy outlook.

Also hurting sentiment towards risky EM assets were concerns of more attacks on ships in the Red Sea, with the South African rand among the top decliners, down 0.9% against a firmer dollar. The Johannesburg Stock Exchange's Top-40 index lost 1% while bourses in Warsaw, Budapest and Russia also slipped between 0.4% and 0.7%.

Among Asian currencies, the Taiwan dollar, which has been under pressure following the weekend's election outcome, extended its fall to the third straight day. It was last down 0.8%. Taiwan's central bank sold U.S. dollars on Tuesday to support the depreciating Taiwan dollar and stabilise the market, three traders told Reuters.

Hong Kong shares slumped 2.2% to an over one-year low, dragged by a selloff in technology stocks. Equities in mainland China closed higher. Emerging market assets have started 2024 on a soft footing as investors scaled back bets of early interest rate cuts from the U.S. Federal Reserve.

Later in the day, investors will watch out for remarks from Fed Board Governor Christopher Waller, who had surprised markets with a dovish shift in tone in November. "We presume today that he will stick to that same core message of successful disinflation and will not want to get involved in the fine-tuning of discussing a 2024 easing cycle, " ING strategists said in a note.

"We thus see event risk as a benign one – slightly negative for the dollar and positive for risk." Investors also had an eye on comments from global leaders at the World Economic Forum in Davos, where Chinese Premier Li Qiang is set to speak on Tuesday.

The Turkish lira hovered above the 30 to the dollar level. The Polish zloty underperformed peers in central and eastern Europe, sliding 0.5%.

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