NEW YORK — Emerging market stocks gained 0.7 percent Monday, extending a four-session rally in developing-nation currencies that added 0.2 percent, after Friday's soft U.S. employment report prompted institutional investors to pull forward expectations for a Federal Reserve pause.
The MSCI Emerging Markets Index erased all losses from the prior week, pushing the benchmark into positive territory for August after two consecutive monthly declines. Indonesia's rupiah led currency gains.
The weaker labor data immediately hit short-duration Treasury yields, which moved lower and pulled the Bloomberg Dollar Spot Index down 0.4 percent Friday — its lowest close in more than two months. Softer rate-hike expectations compress the yield differential between U.S. and developing-nation debt, reducing the carry advantage of dollar-denominated assets and redirecting global capital toward higher-yielding emerging market bonds and equities.
Wee Khoon Chong, senior Asia Pacific market strategist at BNY in Hong Kong, said the dollar's depreciation last week was the primary driver of emerging market currency strength. Chong said U.S. consumer price data due later this week will serve as the next key catalyst, determining the near-term path for the dollar and, by extension, emerging market currencies.
Technology firms contributed to the MSCI index gains. Taiwan Semiconductor Manufacturing Co. Delta Electronics Inc. and SK Hynix Inc. were among the top performers Monday.
Indonesia's stock benchmark is on track to enter a technical bull market, supported by signs of a resilient domestic economy and easing concerns over potential market downgrades.
Rising oil prices cut against the broader risk rally. Brent crude traded above $84 a barrel Monday as geopolitical tensions escalated: Iran and Oman remained without a deal to reopen the Strait of Hormuz, and Houthi militants claimed an attack on a Saudi refinery near the Red Sea.
