Stocks, currencies subdued after inflation-driven selloff
By Shreyashi Sanyal
June 14(Reuters) - Emerging market stocks were muted on Tuesday after a selloff, driven by worries of rising inflation and a growingly hawkish Federal Reserve, while currencies edged higher.
The MSCI's index .MSCIEF for EM stocks was flat after its worst day in over three months on Monday. A COVID warning from China also added to worries, but Shanghai shares .SSEC ended higher on Tuesday.
Currencies were trading in a tight range as the dollar =USD gained ahead of the Fed's policy decision on Wednesday. Markets are now pricing in a larger-than-expected three-quarter-percentage point interest rate hike against a global surge in inflation.
"Inflation jitters and recession fears are likely to foster a sense of caution across global markets with the sentiment pendulum swinging further away from risky assets," said Lukman Otunuga, senior research analyst at FXTM.
Wall Street stocks confirmed a bear market milestone on Monday on rising worry that aggressive monetary tightening would push the U.S. into recession.
Turkey's lira TRY= eked out gains, while 10-year benchmark bond yields slipped again and have fallen by 700 basis points since late last week when the central bank unveiled new rules for banks' fixed-rate debt holdings.
"Global inflation and recession fears are hitting emerging markets broadly, but both the lira exchange rate and Turkey's credit spreads are coming under palpable pressure," said Tatha Ghose, FX and emerging markets analyst at Commerzbank.
"What matters most in Turkey's case is that the central bank's unconventional monetary policy has exposed asset prices fully to such global shocks."
The South African rand ZAR= steadied after plumbing four-week lows, while the Russian rouble EURRUBTN=MCX firmed towards a three-week high against the euro in volatile trading.
Against the dollar, the rouble RUBUTSTN=MCX was still close to multi-year peaks, supported by capital controls that Russia imposed in late February after sending tens of thousands of troops into Ukraine.
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Reporting by Shreyashi Sanyal in Bengaluru; Editing by Shailesh Kuber
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