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Emerging FX Edges Lower Ahead of Ukraine Meetings, Jackson Hole

(Bloomberg) -- Developing-nation assets traded mixed Monday ahead of talks between US President Donald Trump and his Ukrainian counterpart Volodymyr Zelenskiy, with investors watching for signs of progress toward a Russia-Ukraine peace deal.

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The South African rand, a bellwether of risk appetite, led a gauge of emerging-market currencies lower as the greenback advanced. Meantime, the benchmark index for emerging-market stocks edged higher, though it pared much of the advance seen during Asian trading hours.

Trump’s Monday meetings with Zelenskiy and other European leaders also come ahead of the Fed’s annual retreat at Jackson Hole this week, when Chairman Jerome Powell’s speech may offer hints on a potential September interest-rate cut.

“Markets are in a bit of a holding pattern until we get to Jackson Hole on Friday,” said Brendan McKenna, an economist at Wells Fargo in New York. “The CPI and PPI data have markets a bit concerned Powell won’t come” out too strongly in favor of cutting rates next month. “Markets don’t want to be caught offside leading into the symposium.”

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US interest-rate swap traders are pricing in over 100 basis points of interest-rate reductions by the US Federal Reserve over the next 12 months despite expectations of a rise in inflation, Deutsche Bank AG analysts led by Jim Reid said in a note.

“There’s been incredible buoyancy across risk assets that’s seen valuations become increasingly stretched,” the analysts wrote.

Elsewhere, Bolivia’s dollar bonds were the biggest gainers among emerging-market peers after voters elected two pro-business candidates to face off in an October runoff for the presidency. Notes due in 2028 and 2030 jumped at least 3 cents on the dollar to above 80 cents, the highest in two years, according to data compiled by Bloomberg.

READ: Voters End Two Decades of Socialist Party Rule in Bolivia

Ukraine’s dollar bonds were also among the top performers of the day ahead of the meetings. Still, given the wide gap in negotiating positions and a lack of decisive developments on the battlefield, a team led by UBS Global Wealth Management’s Chief Investment Officer Mark Haefele wrote in a report the war is likely to go into next year.

“Any negotiation process will be drawn out given the lack of trust and distance between desired outcomes, and any agreements will likely be treated with suspicion,” the UBS team said.