Emerging market stocks and currencies are expected to experience their largest decline in approximately three weeks, as a selloff in major US technology stocks has dampened demand for riskier assets. The MSCI emerging market currency index fell by as much as 0.3%, while the index tracking developing economy stocks dropped 1.3%. The Taiwan dollar and Korean won led the declines, with Taiwan Semiconductor Manufacturing Company (TSM.US) posting the largest stock decline.
"Last night's tech stock plunge hurt market sentiment, which stands in sharp contrast to the positive momentum in European markets," said Anders Faergemann, portfolio manager at PineBridge Investments.
The Federal Reserve's interest rate trajectory has once again become a focal point, with the July Federal Open Market Committee meeting minutes set to be released subsequently. Investors are also anticipating Fed Chairman Powell's speech at the Jackson Hole conference on Friday for clues about potential easing policies, while traders expect the Fed to cut rates in September.
Faergemann stated he expects the Federal Reserve to cut rates in September, followed by quarterly cuts over the next 12 months. "This aligns with our envisioned 'soft landing' scenario. We believe this is favorable for credit, including emerging market credit, but valuations have become slightly overextended," he said.
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