Stocks, FX slip on inflation jitters, but eye weekly gains

The rand on Friday sank 0.8% as a surge in Covid-19 cases hit risk appetite.
The rand on Friday sank 0.8% as a surge in Covid-19 cases hit risk appetite.

Most emerging market stocks and currencies fell on Friday as caution kicked in ahead of a U.S. inflation reading that could prompt the Federal Reserve to tighten policy at a faster pace.

The rand sank 0.8% as a surge in Covid-19 cases hit risk appetite. The country outlined plans to offer booster vaccine doses, as it grapples with a fourth wave of Covid-19 stemming from the Omicron variant.

MSCI's indexes of emerging market (EM) currencies and stocks dropped 0.3% and 0.8%, respectively, weighed down mainly by Chinese assets on a set of weak economic data.

But both EM indexes were set for a second straight weekly gain, as concerns over the Omicron coronavirus variant eased further.

China's yuan fell about 0.2%, while stocks also retreated on weaker-than-expected money market and credit data.

Concerns over China's debt-saddled property sector intensified after ratings agency Fitch downgraded China Evergrande Group and Kaisa Group on Thursday, saying they had defaulted on offshore bonds.

The U.S. dollar index was largely flat but set for its seventh straight weekly rise ahead of the inflation data due later in the day, where any upside surprise will likely be interpreted as a case for early interest rate hikes.

"The data is likely to confirm the Fed's concerns that inflation is not going to be as transitory as originally expected and that tapering might have to be quicker after all with interest rates being hiked," analysts at Commerzbank wrote in a note.

Analysts are also bringing forward the timeline for a U.S. rate hike next year amid growing signs of inflation being more persistent than expected.

The Turkish lira hovered near record lows against the dollar as inflation expectations continued to grow. The lira was the worst performing EM currency this week, down about 1.1%.

A Turkish central bank survey forecast annual consumer price inflation at 23.85% at the end of the year, up from a forecast of 19.31% a month earlier.

Most EM currencies in central and eastern Europe inched lower against the euro with the Hungarian forint, Czech crown and Polish zloty all down between 0.1% and 0.3%.

Czech central banker Vojtech Benda said the bank has not yet finished raising interest rates, as it faces extraordinary inflationary pressures. Czech consumer inflation rose 6% in November, a touch below expectations.

Poland's central bank hiked rates this week in response to rising inflation. But the zloty weakened after the rise missed some expectations for a bigger hike.