Emerging Stocks Shine Even as Global Rally Slows

Emerging markets headed toward the best week in eight months even as the global equities rally spurred by the Federal Reserve’s outlook lost momentum. The dollar was poised for its biggest weekly loss since February.

Markets from Malaysia to Turkey climbed, while Jakarta’s benchmark touched a record before erasing gains. Shares in Tokyo slumped, weighing down the MSCI Asia Pacific Index after it posted its biggest gain since November. European shares opened lower, while the S&P 500 Index retreated Thursday after climbing to within 0.5 percent of an all-time high. The Bloomberg Dollar Spot Index was little changed after a two-day loss, while Treasuries recovered some of the previous day’s declines.

Global stocks are on course for the best week since January after the Fed raised its benchmark lending rate a quarter point without accelerating the timetable for future hikes. Investors largely anticipated the tightening and Treasury yields had climbed with the dollar on speculation the central bank might signal a faster pace of tightening.

“A less hawkish monetary policy in the U.S. is more likely to push assets outside of the U.S. into higher-risk, higher-return markets,” James Woods, a Sydney-based investment analyst at Rivkin Securities, said in a phone interview. “A weaker dollar is supportive of those emerging markets generally. I’m not sure whether its going to be long-lived though. People are going to get back to focusing on the next Fed hike, and also Trump’s policies which would be dollar supportive.”

China’s central bank also raised borrowing costs this week and the Bank of Japan left its monetary policy setting unchanged. The pound strengthened Thursday as some Bank of England policy makers said they may not be far behind Kristin Forbes who’s leaning toward raising interest rates.

Volatility is retreating after the central bank policy decisions. At the same time, the defeat in this week’s Dutch elections of anti-immigration candidate Geert Wilders is being seen as a blow to populist political leaders, easing concerns ahead of French elections. A gauge of volatility on the Euro Stoxx 50 Index plunged 26 percent on Thursday, the most on record.

“Volatility is scarily low and there’s just a lot of complacency out there,” James Audiss, a senior wealth manager at Shaw and Partners in Sydney, said in a phone interview. “After we get through the big macro events with governments and elections, we have to start to look to corporate earnings. That’s where it becomes not so much a systemic stock market move as stock selection.”

What investors will be watching:

The focus Friday will be a meeting between Donald Trump and Angela Merkel, while Steve Mnuchin attends his first G-20 finance chiefs gathering in Germany as U.S. Treasury secretary. He repeated his view on Thursday in Berlin that the long-term strengthening of the dollar is in the best interest of the U.S. economy and that it reflects confidence in the world’s reserve currency.

Rex Tillerson continues his first trip through Asia as U.S. secretary of state, stopping in South Korea before heading to Beijing. At a joint briefing in Tokyo with foreign minister Fumio Kishida, he called for a strong alliance between the U.S., Japan and South Korea to counter Kim Jong Un’s regime.

Economic data on Friday include U.S. industrial production for February, while Tiffany & Co. is scheduled to release earnings.

Read our Markets Live blog here.

Here are the main moves in markets:

Stocks

The Stoxx Europe 600 Index slid 0.4 percent as of 8:25 a.m. in London, paring a weekly gain after reaching the highest closing level since December 2015 on Thursday.

The MSCI Asia Pacific Index retreated 0.2 percent, after closing Thursday at the highest since June 2015. Japan’s Topix fell 0.4 percent, capping its biggest weekly decline in more than a month.

The MSCI Emerging Markets Index rose 0.2 percent, bringing its rally for the week to 4.2 percent, far outpacing a 1.3 percent advance for the MSCI All-Country World Index.

The Jakarta Composite Index gained as much as 0.7 percent to a record before erasing gains. India’s Sensex Index climbed 0.3 percent, taking its gains for a holiday-shortened week to 2.6 percent. South Korea’s Kospi and Taiwan’s Taiex jumped 0.7 percent.

Hong Kong’s Hang Seng and the Hang Seng China Enterprises Index were little changed after soaring the most since May on Thursday.

Futures on the S&P 500 slipped 0.1 percent, after the benchmark gauge fell 0.2 percent Thursday.

Currencies

The Bloomberg Dollar Spot Index added less than 0.1 percent, after dropping 0.2 percent on Thursday on top of a 1.3 percent post-FOMC drop. The gauge is down 1.2 percent for the week, the most since the period ended Feb. 3.

The yen was little changed at 113.33 per dollar, paring its biggest weekly gain in more than a month.

The pound slipped 0.1 percent to $1.2353. The currency is up 1.5 percent for the week, its biggest gain since January. The euro was little changed at $1.0769, bringing its advance for the week to 0.9 percent.

Bonds

The yield on 10-year Treasuries fell one basis point to 2.53 percent, after rising five basis points on Thursday. The rate dipped below 2.50 percent following the Fed decision. It traded above 2.60 percent earlier in the week.

Australian 10-year yields rose for the first time in five days, climbing five basis points to 2.86 percent. The rate tumbled 10 basis points on Thursday.

The yield on New Zealand’s benchmark advanced three basis points to 3.28 percent, after also dropping 10 basis points in the previous session.

Commodities

Oil rose 0.2 percent to $48.84, heading toward its first weekly gain in three weeks thanks to a surge on Wednesday.

Gold added 0.1 percent after a two-day gain, trading at $1,228.33 an ounce and poised for a 2 percent increase for the week.