LONDON, Aug 31 (Reuters) - An overnight drop in the Argentinian peso and fresh concerns about an ongoing trade dispute between China and the United States pressured emerging market currencies lower on Friday.
Emerging market stocks slipped 0.4 percent and were set to end the month down over 3 percent after U.S. President Donald Trump said he was prepared to impose tariffs on another $200 bln worth of Chinese imports as soon as a public comment period on the plan ends next week.
Bonds also weakened. An ishares JP Morgan emerging market dollar bond ETF fell to its lowest level in two weeks overnight and was set for a monthly loss of nearly 2.5 percent.
Emerging markets have had a torrid week with the Indian rupee and the Indonesian rupiah trading at their weakest levels in 2018 as the falls in the peso and the Turkish lira produced shockwaves.
“Given there are few direct linkages to be made between any of the underlying economies with Turkey, this suggests that investors are focusing instead on common factors between these economies,” BNY Mellon strategists said in a daily note pointing at the current account deficits in these countries as a factor.
The peso lost almost a fifth of its value at one point on Thursday, ending with a loss of close to 10 percent and a drop in August so far of almost 30 percent. Desperate attempts to shore up the currency with a central bank interest rate rise to 60 percent from 45 percent offered some support.
The Turkish lira rose a percent to 6.57 against the dollar on Friday, backing further away from a record low of 7.24 hit two weeks ago, after overnight news that the Turkish central bank deputy governor and ratesetter Erkan Kilimci is leaving the bank two weeks before a monetary policy meeting.
A revival in trade war worries also gave a fresh boost to the dollar and raised fresh concerns over the outlook of emerging markets. Emerging market stocks are down more than nine percent so far this year.
The world’s two largest economies have applied tariffs to $50 billion of each other’s goods and the proposed new U.S. measures would mean about half of Chinese imports will be charged with tariffs by the United States.
Credit default swap spreads took a breather on Friday after Argentina’s CDS hit a new record of 763 basis points in the previous session. Turkey’s CDS tightened slightly to 537 basis points from 541 basis points on Thursday.
While wider markets remained broadly immune to the broadening emerging market sell-off, some peripheral markets, especially Italy government bonds, came under pressure on Thursday.
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