Sino-US data indicates slowdown, Emerging markets dip sharply amidst trade ambiguity

Emerging market shares fell heavily on Friday as risk sentiment took a hit after dismal China and U.S. data reiterated global growth slowdown fears, adding to geopolitical and trade worries. Shares across Asia were well in the red, with mainland China stocks posting their worst day since early to mid-December as China's January producer prices slowed for the seventh straight month, spurring worries of deflation.

"The more concerning figure is the producer price numbers which are sometimes correlated with the Chinese profit numbers," said Rob Carnell, Chief Economist & Head of Research, Asia-Pacific, ING. This came after weak retail sales in the United States overnight, and U.S. trade negotiator Larry Kudlow saying no decision to extend the March 1 deadline to strike a trade deal with China had been made yet.

U.S. tariffs on $200 billion worth of imports from China are scheduled to rise to 25 per cent from 10 per cent if the two sides cannot reach a deal by the deadline. "We've been running on a prospect of things looking much more promising...and now we still don't know what's going to happen," Carnell said.

The MSCI index of emerging market stocks fell 0.8 per cent. Stocks in South Africa shed 1 per cent, while those in Turkey declined 0.8 per cent. Russian shares recovered after two sessions of losses. Among currencies, India's rupee saw its biggest drop since first trading day of the year as investor sentiment took a beating on rising diplomatic tensions between the two nations.

New Delhi threatened to take away trade favored status from its neighbour after a suicide bomber killed 44 Indian paramilitary police in Kashmir. Pakistan's currency was down 0.4 per cent. In Turkey, the lira rose ahead of rating agency S&P's review of the country's sovereign credit rating. Credit Suisse analysts do not expect a change in rating from 'B+' and an outlook of stable.

Higher oil prices supported a recovery in Russia's rouble after heavy falls on Thursday following the threat of tougher than expected U.S. sanctions. Over the week, the currency was set to break a six-week winning streak. The South African rand surged, but was set to clock weekly losses close to 3 per cent - its sharpest fall since early October - as the nation's power crisis took a toll.

Among European currencies, the Czech crown rose after data showed that the economy grew faster than expected in the fourth quarter. For GRAPHIC on emerging market FX performance 2018, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance 2018, see https://tmsnrt.rs/2OusNdX.