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Emerging market stocks and FX fall, ECB meet awaited

China’s finance minister reiterated the country would not seek to flood the economy with stimulus,
Developing world currencies held course ahead of news on the pace of global growth from the European Central Bank's meeting. Picture: Krisztian Bocsi, Bloomberg

Most emerging market stocks fell on Thursday, with Chinese blue-chips losing steam, while developing world currencies broadly held course as they awaited cues on the pace of global growth from the European Central Bank’s meeting.

China’s finance minister reiterated the country would not seek to flood the economy with stimulus, tempering hopes of further support to the world’s second largest economy and sending blue-chip stocks on the mainland 1% lower.

A 0.6% fall for MSCI’s emerging markets stock index ended its four day winning run, while MSCI’s developing market currencies index was a shade lower. The ECB is expected to slash growth forecasts and give its strongest signal yet that fresh stimulus is coming in the form of more cheap loans, known more formally as Targeted Long-Term Refinancing Operations (TLTROs).

“Global risk sentiments may take a backseat today, as market players await the ECB policy decision,” wrote OCBC Bank analysts in a note, adding market speculation was now revolving around a fresh TLTRO round.

Fears of global growth being continually bogged down by the US-China trade war have sent investors fleeing from riskier assets to safer bets in the developed world over the past months.

A cut in global growth forecasts by the Organization for Economic Co-Operation and Development rattled risk appetite further.

South African shares fell 0.3% and their Russian peers lost half a percent on Thursday, while those in Turkey managed to eke out a 0.3% gain.

South Africa‘s rand weakened 0.3%, while Russia’s rouble fell marginally.

Turkey’s lira dipped 0.2%, set to extend losses to an eighth straight session, which would be its longest losing streak since November 2016.

The country’s central bank matched market expectations on Wednesday by leaving interest rates unchanged, adding it would tighten monetary policy further if needed.

The stance soothed investor worries that it could loosen policy after inflation fell from a 15-year peak.

Emerging European currencies weakened against a slightly firmer euro, with Poland’s zloty a touch softer after the local central bank kept its key rate unchanged on Wednesday.

A package of social spending and tax cuts in Poland does not raise the chance of interest rate increases in 2019 and 2020, the central bank governor said after the decision.

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