Emerging Markets Show Tepid Start Amid Inflation Reports and Interest Rate Decisions

Emerging markets began the week cautiously as investors await inflation reports from key developing economies and Israel's interest rate decision. MSCI's emerging markets indexes for stocks and currencies saw marginal gains. Central banks' rate decisions and economic reforms in China and other countries are under close watch.

Emerging markets stocks and currencies experienced a tepid start to the week as inflation reports from top developing economies loom and investors await Israel's interest rate decision. MSCI's emerging markets equity index and currency index each rose 0.1% by 0903 GMT on Monday.

Investor focus is on consumer inflation reports for June from key emerging economies such as China, India, the Czech Republic, Romania, Hungary, and Russia. The MSCI equities index has gained over 8% this year, aided by central banks reducing interest rates. However, growing concerns over potential inflationary pressures have emerged.

China's major equity indexes fell by 0.9%, reaching a four-month low, while Hong Kong stocks dropped 1.5%. Investors are anticipating the Communist Party's Third Plenum, expected to introduce significant reforms to support China's struggling economy. BBVA Research economists Jinyue Dong and Le Xia stated, 'The market anticipates the Session to conclude with a stimulus package powerful enough to lift China's economy out of secular slowdown.'

The People's Bank of China announced it would begin temporary bond repurchase agreements to enhance the efficiency of open market operations and maintain ample banking system liquidity. Sovereign bond yields in China rose between 1 and 3 basis points.

Meanwhile, Israel's central bank's interest rate decision is awaited, with economists predicting rates to remain steady at 4.5%. The shekel dipped 0.1%. In central and eastern Europe, currencies showed volatility, particularly as France faced a hung parliament post-elections. The Czech crown remained flat following its central bank's June monetary policy meeting minutes, revealing a larger-than-expected rate cut of 50 bps.

Elsewhere, Taiwanese stocks surged 1.3% to a record high, driven by technology stocks, notably with TSMC achieving an all-time high. Pakistan's Karachi stock exchange resumed trading after a brief suspension due to a fire, with the benchmark index rising 0.5%. Additionally, Ghana's finance ministry stated that the proposed debt restructuring deal with Eurobond holders was balanced, leading to a 25 bps drop in 5-year bond yields.

(With inputs from agencies.)