Most stocks and currencies in emerging markets stumbled on Thursday, weighed down by fears of escalating conflict in Iran that sent oil prices up more than 7%, while investors assessed the impact of the US Federal Reserve’s hawkish stance.
According to a report by Axios published late Wednesday, Donald Trump is set to receive a briefing on plans for targeted military strikes against Iran in hopes of pushing the country to resume negotiations, which pushed Brent crude to a new four-year high.
Since the conflict began, the war in Iran has shaken global markets and fueled inflation concerns, with disruptions in maritime transport in this strategic region keeping crude oil prices at high levels.
The MSCI reference indices for currencies and emerging market stocks fell by 0.2% and 1.2% respectively, while still on track to register strong monthly gains.
The stock market index is poised to record its strongest monthly growth since November 2022, as risk appetite has rebounded this month following the announcement of a temporary ceasefire between the US and Iran, extended later despite stalled talks.
‘With no signs of peace talks and mounting fears of escalation, oil prices continued their upward trend in recent days… investors are now factoring in a more prolonged conflict,’ noted analysts at Deutsche Bank.
Most stock indices closed lower, including in Asia where markets had previously benefited from excitement around artificial intelligence. However, the South Korean and Taiwanese exchanges still had their best month in decades.
In Eastern Europe, Romanian stocks remained stable, Hungarian stocks increased by 1%, while Polish stocks declined by 0.6%. The Turkish market, on the other hand, gained 0.4%.
Conversely, South African stocks increased by 0.7%, buoyed by a rise of over 1% in gold prices, one of the country’s main exports.
FED DISSENT, RUSSIAN ECONOMIC CONTRACTION
On Wednesday, the US Federal Reserve kept its rates unchanged at Jerome Powell’s final meeting as Fed chair. The board was, however, revealed to be the most divided since 1992, with four dissenting votes. Markets have reduced bets on a rate cut this year, now anticipating a status quo until 2026.
‘Three Fed members dissented from the statement, suggesting that the central bank would eventually resume rate cuts, arguing it was too early to signal easing as inflation outlooks remain uncertain,’ said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
‘This divergence could complicate the Fed’s communication under the new presidency, especially as monetary policy expectations evolve.’
The Turkish lira declined by 0.3%, while the South African rand remained stable. Emerging European currencies showed mixed performance against the euro, with the Romanian leu and Hungarian forint both declining by 0.7% and 0.8% respectively.
Russia’s preliminary data released on Wednesday indicates that the economy contracted by 0.3% in the first quarter, marking its first quarterly decline since early 2023.
Furthermore, Sri Lanka’s bonds have generally lost over one percent against the dollar, penalized by the surge in oil prices.
HIGHLIGHTS:
- Hungary’s inflation rate could exceed 5% in the second half, according to the central bank governor.
- Asian bond markets are ignoring war-related anxieties with record local issuances.
- Energy prices are pushing Polish inflation beyond April forecasts.
For major news on emerging markets, visit [Reuters Markets].
For the report on Central European markets, see [CEE/].
For the report on the Turkish market, see [Turkish Market].
For the report on the Russian market, see [RU/RUB].
