Emerging markets assets diverge as US inflation, Middle East impasse muddy rate outlook

The yuan CNY=CFXS was little changed against the dollar. The U.S. dollar-Chinese yuan became the most-traded currency pair in Hong Kong, surpassing the Hong Kong dollar-U.S. dollar for the first time in April. Beijing and Hong Kong authorities have unveiled a range of measures to bolster currency, bond and gold trading in Hong Kong. Polish equities .WIG fell 0.75% and were on course to snap a three-day winning streak after an estimate from the statistics office showed second-quarter gross domestic product rose in line with forecasts. The Polish zloty EURPLN= was largely unchanged versus the euro. "It's not clear to us that Poland's strong performance in the second quarter will be repeated in Q3," said William Jackson, chief emerging markets economist at Capital Economics. "This strong growth is unlikely to shift the balance towards monetary tightening." South Korea's KOSPI index .KS11, a top beneficiary of the AI boom, hit its highest in nearly three weeks after chipmakers SK Hynix 000660.KS and Samsung Electronics 005930.KS rallied. The Korean won KRW= weakened 0.24% against the dollar. Earlier this week, the central bank's outgoing deputy chief said interest rates will be raised further to tame persistent inflationary pressures. Indonesian equities .JKSE fell 1.13%. Ride-hailing giant GoTo Gojek Tokopedia GOTO.JK, one of the country's most valuable companies, is set to be removed from MSCI's Indonesia index as part of a rebalance at the end of the month. Emerging market stocks hit a one-month high on Thursday while currencies slipped, underscoring the uncertainty among investors trying to manoeuvre through a murky outlook for interest rates. Data on Wednesday showed that U.S. inflation in July was in line with expectations, reducing the urgency for rate hikes and buoying risk appetite. An MSCI index of emerging market stocks .MSCIEF rose 0.84% after hitting its highest since July 10 earlier in the session. But regional currencies .MIEM00000CUS fell 0.08%, suggesting that investors were not ready to rule out a stronger dollar in the future. With the crucial Strait of Hormuz still closed, investors worry that oil prices may stay elevated and force the Federal Reserve to raise rates, benefiting the dollar at the expense of EM currencies. The latest data gives the Fed "more room to see more data before making changes to the policy rate," wrote Tiffany Wilding, an economist at PIMCO. "However, FOMC members will want more assurance that inflation is moving in the right direction," she added, referring to the Federal Open Market Committee, which decides monetary policy. The divergence highlights the doubts that have gripped markets caught between a bullish outlook for stocks and an ambiguous economic backdrop.

Emerging markets assets diverge as US inflation, Middle East impasse muddy rate outlook

China and Poland markets

South Korean stocks hit three-week high

Emerging market stocks rise while currencies slip

PIMCO says the Fed has more room to wait for data

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