by Natasha Doff and Zahra Hankir at Bloomberg
Emerging-market currencies deepened their slump to a record low as a surprise slowdown in Chinese manufacturing threatened to exacerbate a rout in global commodity prices.
Brazil’s real led the decline, dropping to the weakest level against the dollar in 12 years on mounting concern that the country’s credit rating will be cut. South Africa’s rand fell 1.3 percent as gold tumbled. The lira slid for a third day as Turkey stepped up its fight against Islamic State militants. The Bloomberg Commodity Index sank to the lowest since 2002. A gauge of 20 developing-nation currencies retreated 0.5 percent.
China’s preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics fell to a 15-month low in July, weakening the outlook for the world’s second-largest economy. Currencies posted their longest stretch of weekly losses since January as U.S. economic data supported the case for the Federal Reserve to raise the near-zero interest rates that have bolstered demand for riskier assets in developing nations.
“It is negative for emerging markets and the world as a whole if China doesn’t manage to get its economy back on track,” Anders Svendsen, an analyst at Nordea Bank A/S in Copenhagen, said by phone. “How the Fed communicates next week will be crucial for emerging markets.”
U.S. policy makers are edging toward raising rates for the first time since 2006 following solid gains in the labor market. There’s a more than 50-50 chance the Fed will lift borrowing costs in September, St. Louis Fed President James Bullard said.
Developing-nation stocks slumped for a third day. The MSCI Emerging Markets Index declined 1.4 percent to 910.40. The gauge is dropped 3.3 percent this week.
The rand depreciated to 12.6118 per dollar in the steepest retreat in seven weeks. Gold, among South Africa’s main metal exports, slid 3.1 percent this week. Higher borrowing costs curb the appeal of bullion, which doesn’t pay interest or give returns like other assets including equities.
The slump in bullion, coupled with the China data, has wiped out any potential support for the rand after South Africa’s central bank raised interest rates on Thursday, Christopher Shiells, a senior emerging-market analyst at Informa Global Markets in London, said by e-mail.
The Bloomberg Commodity Index declined 1.2 percent to the lowest level since March 2002.
The real declined 1.9 percent as the Ibovespa retreated 1.1 percent. Brazilian assets have slumped this week as the government lowered its budget surplus goal as President Dilma Rousseff confronts opposition in Congress to her efforts to shrink spending and boost revenue.
All 10 industry groups in the developing-country stock measure fell Friday as gauges of raw materials and energy shares decreased more than 2 percent. Gold Fields Ltd. retreated 4.8 percent to the lowest since January in Johannesburg.
Russia’s Micex Index slipped 1.3 percent and the ruble weakened 1 percent to a four-month low. Brent crude, the oil grade traders use to price the country’s main export blend, dipped below $55 for the first time in more than three months.
The lira depreciated 0.1 percent against the dollar. Turkey deployed F-16 jets for the first time to strike militants across the Syrian border and allowed a key base to be used for U.S.-led air strikes.
The Hang Seng China Enterprises gauge fell for a sixth week, capping the longest stretch of weekly losses since October. The preliminary PMI was at 48.2 for July, down from 49.4 the previous month. The median estimate in a Bloomberg survey was for an increase to 49.7.
The Shanghai Composite Index dropped 1.3 percent. The gauge has rebounded 16 percent since July 8 after officials allowed more than 1,400 companies to halt trading, while banning major shareholders from selling stakes, restricting short selling and suspending initial public offerings.
Indonesia’s rupiah slumped 0.2 percent to the lowest since 1998 and the Jakarta Composite Index fell 0.9 percent on concern Southeast Asia’s largest economy is slowing.
The premium investors demand to own emerging-market bonds over U.S. Treasuries widened four basis points to 363 basis points, according to JPMorgan Chase & Co. indexes.