AI slump dims emerging market stocks amid wait for US jobs report

Emerging-market currencies were jolted Tuesday by the latest US job report that showed the labor market remains weak, with the Mexican peso and the South African rand — two bellwethers of risk appetite — briefly spiking higher.

The peso and the rand touched session highs following the data release, before both currencies pared the advance. MSCI’s index for emerging-market currencies is down 0.1%, little changed on its position before the report came out.

Nonfarm payrolls rose 64,000 in November after a 105,000 decline in October, according to Bureau of Labor Statistics data released Tuesday. The unemployment rate was 4.6% last month, up from 4.4% in September. The BLS couldn’t publish an October jobless rate because it was unable retroactively collect the data after the government shutdown.

“This print is positive for some carry trades, but I don’t think this is the time to add to those and would rather be defensive on some, like COP and ZAR,” said Alvaro Vivanco, head of strategy at TJM FX.

MSCI’s companion gauge for stocks slumped 1.3%, dropping for a second session as investors grow concerned about AI-driven growth and whether companies can justify their pricey valuations.

The MSCI China Index fell 1.6% and Hang Seng China Enterprises Index slid 1.8%. Both briefly entered technical correction.

At this time of the year, investors are likely to take some year-end profits after a good run, according to Xin-Yao Ng, a fund manager at Arbdn Asia Ltd.

“There might still be reasons for markets to remain soft for rest of month,” he said. “But if it falls hard enough, we might see investors positioning back for the new year.”

Elsewhere, the Brazilian real underperformed as jitters around next year’s presidential election persisted. Local media said a survey on President Luiz Inacio Lula da Silva’s popularity is set for release tomorrow, followed by new election polling data on Thursday.

In credit markets, Ukraine’s sovereign bonds climbed, outperforming peers. The nation’s president Volodymyr Zelenskiy said there is an agreement with the US to make security guarantees legally binding through a vote in Congress as part of a deal to end Russia’s war.

Central Banks

Hungary’s central bank kept its key interest rate unchanged at 6.5% for a 15th month, as expected.

Meanwhile, Brazil’s central bank on Tuesday published the minutes of its latest monetary policy meeting where it kept the key Selic rate at 15% for a fourth straight time.

In the minutes to their Dec. 10 decision, Brazil’s policymakers agreed that tighter monetary policy is required for a longer period, as inflation expectations remain above target despite weaker economic activity.

Chile’s central bank will probably lower interest rate cuts on Tuesday, reducing its benchmark by a quarter-point as policymakers seize on an improving inflation outlook.