FirstFT: Emerging markets hit by ‘toxic’ mix of rising rates and slower growth

Emerging market currencies have fallen by the most since the early stages of the pandemic as a “toxic” mix of rising US interest rates and slowing Chinese growth dims the outlook for developing economies.

An MSCI gauge of emerging market currencies has tumbled more than 4 per cent since early April as the Federal Reserve embarked on an aggressive tightening of monetary policy in a bid to rein in inflation, boosting the US dollar and battering stocks and bonds.

Coronavirus lockdowns in China have piled on further pressure by threatening a critical source of demand for emerging economies. The renminbi fell to its weakest level against the dollar in more than 18 months yesterday after data showed the country’s April exports grew at the slowest pace in two years, spurring selling across emerging market currencies.

The threat to emerging markets comes as Wall Street suffered its worst one-day decline yesterday since the early months of the pandemic in 2020, as investors fretted about signs of slowdowns in the world’s big economies.

“We have had this cooling down of Chinese demand coming at a time when the Fed is hiking interest rates and inflation is still pushing higher,” said Cristian Maggio, head of emerging markets portfolio strategy at TD Securities. “As if that weren’t enough we still have the risks related to the war in Ukraine. It’s a very toxic combination.”

• More on the economy: Richard Bernstein questions whether the current real fed funds rate will slow the economy, let alone curtail inflation.

Thanks for reading FirstFT Europe/Africa. Here’s the rest of the day’s news — George

The latest on the war in Ukraine

• Kyiv’s confidence: Ukraine has upgraded its war aims and is looking to push Russian forces out, foreign minister Dmytro Kuleba told the Financial Times.

• Food prices: Protectionism is exacerbating soaring prices in global food markets as governments clamp down on exports of staples including grains, cooking oil and pulses.

• Victory Day: In his Red Square speech, Vladimir Putin sought to justify his invasion by claiming Russia had to defend itself. Gideon Rachman writes that Moscow is mired in a grinding, inconclusive and increasingly humiliating war.

• The FT View: The EU has responded admirably to Russia’s invasion. But its steps should only be the start of a more ambitious collective endeavour to strengthen the bloc.

Five more stories in the news

1. UK purges business reforms from agenda When Boris Johnson’s government unveils its legislative programme for the coming year today, there will be some striking omissions: laws to improve auditing and corporate governance, provide statutory powers for a technology watchdog and create a new football authority have all been dropped.

2. Oil majors quiet on profit driver When Europe’s biggest energy companies reported record profits for the first quarter there was one constant: trading. But BP, Shell and Total declined to provide a breakdown of the financial performance of their various trading units, or the contribution to overall group profits.

3. New South Korean leader ignites nuclear debate Yoon Suk-yeol, inaugurated as South Korea’s president today, has promised to “dramatically strengthen” defences against North Korea, as a debate mounts over whether Seoul should push for a return of US nuclear weapons or even develop its own deterrent.

4. Crypto market value drops $1.6tn since November Cryptocurrencies have shed $1.6tn in market value, tumbling 50 per cent from an all-time high seven months ago, as interest rate rises send investors fleeing from the riskiest corners of the markets.

5. Grindr to go public in Spac deal The gay dating app plans to go public through a merger with a special purpose acquisition company that would give it an implied valuation of $2.1bn. Grindr will receive $384mn in proceeds as part of the transaction with Tiga Acquisition, a Spac set up by Ashish Gupta in 2020.

The latest coronavirus news

• UK Labour leader Sir Keir Starmer has pledged to quit if he is fined for breaking coronavirus restrictions over a meal during a campaign in Durham last year.

• UK retail sales fell in April as shoppers tightened their belts in response to the cost of living crisis, while imported goods faced delays because of supply chain disruption and lockdowns in China.

• German pharma company BioNTech beat earnings and revenue expectations as the Omicron variant spurred demand for its Covid-19 jab developed with Pfizer.

The day ahead

Queen’s Speech UK prime minister Boris Johnson will put forward legislation for the third, crucial parliamentary session spanning 2022-23 in the Queen’s Speech, which will announce about 20 pieces of legislation, including economic crime, financial services and media bills.

Economic data Germany’s ZEW indicator of economic sentiment is out, while Hungary has April’s consumer price index.

Earnings Bayer, Coinbase, Mitsubishi, Nintendo, Pirelli, Sony and Sumitomo are among companies reporting results today.

Central bankers speak European Central Bank vice-president Luis de Guindos speaks at a banking industry event organised by IESE Business School. Bank of England monetary policy committee member Michael Saunders speaks at an event run by the Resolution Foundation think-tank.

FT’s Future of the Car Summit, which runs through Thursday, features Tesla founder Elon Musk, who will be speaking and taking questions, along with a host of other industry leaders. Register here.

What else we’re reading and watching

Bored Ape creator’s next windfall The start-up behind Bored Ape Yacht Club, the non-fungible token collection of digital art snapped up for millions of dollars by celebrities and crypto-enthusiasts, has an ambitious new idea: selling plots of virtual land in its own metaverse, an alternative to platforms being built by Silicon Valley companies such as Apple and Meta.

South Africa’s Durban beset by difficult waters Rotting infrastructure and a lack of maintenance has sent Durban, the “lifeblood” of South Africa’s economy, to the bottom of global port rankings. Weeks after the worst flash floods in decades, and a year after the city was wracked by violent unrest, companies are still clearing debris.

Henry Kissinger: ‘We are now living in a totally new era’ The cold war strategist discussed Russia, the Ukraine war and China at the FT Weekend Festival in Washington this past weekend. Catch up on the full transcript of Kissinger’s interview with the FT’s Edward Luce and watch it here.

New Zealand’s jobs law will cause ripples beyond its shores Legislation going through New Zealand’s parliament aims to make bad jobs better by setting a minimum floor for pay and conditions. Sarah O’Connor says the bill represents a huge shift in the labour market — and its success or failure will have an impact on the wider world.

The enduring fascination of the ‘power spouse’ Films and books are often devoted to telling the stories of the rich and powerful. But their spouses can be equally fascinating, Emma Jacobs writes. How else to explain newspapers’ soap opera recounting of gossip about Meghan Markle and Carrie Johnson?

What to watch

Explore the best of TV and streaming this week, from hard-hitting French drama Oussekine to Our Father, a nightmarish story of a doctor who played god, modern dating explored in Love Life and more.