Oct 30 (Reuters) - Emerging-market shares fell on Wednesday as hopes faded a partial Sino-U.S. trade deal would be signed next month, while an imminent U.S. Federal Reserve interest rate decision and its future rate path held back currencies.
South Africa’s medium-term budget is also being eyed. The rand before a speech from Finance Minister Tito Mboweni that’s expected to disclose a wider government deficit and higher debt.
Global sentiment suffered after Reuters reported that U.S. officials warned not to expect a trade deal with Beijing by next month’s Asia Pacific summit.
Markets had raised expectations the deal would be signed in November after it was agreed earlier this month, more than a year after the dispute began.
MSCI’s index of emerging-market shares slipped 0.2% but remained near three-month highs. Stocks in China , Turkey and South Africa lost 0.5% to 1.4%.
Its currency index was little changed. The Fed is almost certain to cut interest rates by a quarter point, but markets will be looking for any signals from Chairman Jerome Powell about policy for the rest of the year.
“If the Fed were to suggest the possibility of a further cut, thus sounding more dovish than expected by the market, that is likely to put stronger pressure on the dollar,” analysts at Commerzbank said, supporting emerging-market currencies.
Futures markets have cut their chances of another cut in December in recent weeks to 30% from 70%. The Fed will get a report on third-quarter U.S. economic growth, which is expected to have slowed, before its decisiion.
‘D-DAY’ IN SOUTH AFRICA
South Africa’s rand fell 0.1% before the budget speech, expected at 1200 GMT, which precedes a Moody’s review of South Africa on Friday.
The rand had slipped up to 1% as data showed unemployment touched an 11-year high and analysts took a sceptical look at the government’s plans to break up struggling state power utility Eskom.
“(The budget) will present potential for disappointments and thus ZAR-devaluation risks if the big throw expected by some fails and if the government sticks to its salami tactics,” said Elisabeth Andreae, FX & EM analyst at Commerzbank, calling it D-day in South Africa.
But movements in rand are likely to be limited until the Moody’s review, she said. Moody’s is the last among the top three rating agencies to give South Africa an investment-grade rating. Recent nation-wide power outages by Eskom have had markets worried about its being retained.
Turkey’s lira weakened after the U.S. House of Representatives overwhelmingly backed legislation calling on U.S. President Donald Trump to impose sanctions on Turkey over its offensive in northern Syria.
U.S. sanctions were lifted last week when Trump said a U.S.- brokered ceasefire in Syria was permanent.
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