LONDON, Feb 5 (Reuters) - A global bond and equity market sell-off sent emerging stocks down more than 1 percent on Monday, while localised strains intensified in South Africa as President Jacob Zuma resisted growing pressure to step down.
MSCI’s 24-country emerging markets index slipped for a third day running to its lowest in three weeks as broad falls in African, Middle Eastern and eastern European markets followed a more than 1.3 percent slump in Asia.
The losses follow Friday’s U.S. payrolls report which showed wages growing at the fastest pace in more than 8-1/2 years, fuelling inflation expectations and sparking speculation that developed central banks may be forced to tighten more aggressively.
Yields on 10-year U.S. Treasury paper, which acts as a benchmark for global borrowing costs, especially in emerging markets, hit a four-year high of 2.885 percent on Monday.
“We have had a massive rally over the last 12 months, markets were looking for a trigger to stop it, and that trigger came from the big curve steepening we saw in the U.S.,” said Simon Quijano-Evans at Legal & General Investment Management.
Given how the dollar had not really reacted all that much, much focus was on where Treasury yield would go next, he added.
“We could easily test the 2.9 percent level for U.S. 10-year Treasury yields – that’s the next level EM is focusing on.”
South African assets came under particular pressure as investors took a fright over the country’s latest political woes.
The main stock index tumbled 2.5 percent - its biggest daily loss since summer 2016 and the eighth straight session in the red. Debt markets also came under pressure with dollar bonds selling off and debt insurance costs hitting their highest in a month.
The ANC has called an urgent meeting for Monday of its National Working Committee on Zuma’s futures while both pro- and anti-Zuma protest marches are expected to converge on party headquarters.
The rand strengthened 0.6 percent against the dollar, however, holding up better than other emerging market currencies following the pick-up in U.S. Treasury yields in the past few days suggested markets were betting there could be some positive news out soon, said Legal & General’s Quijano-Evans.
“It does look as if the country is one step closer to a change of leadership and this would provide room for further recovery in South African assets,” he said.
Emerging currencies elsewhere were struggling to make much headway. Turkey’s lira strengthened 0.2 percent inflation eased back towards 10 percent, coming in below forecast.
Meanwhile Russia’s rouble was treading water as Brent crude prices fell to their lowest in nearly a month even though data showed the country’s service sector recorded strong output growth at 55.1 in January.
Data out of China showed that the service sector in the world’s second largest economy grew at the fastest pace in nearly six years in January.
Chinese stocks were the lone major Asian market to have avoided the global sell-off overnight.
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Reporting by Karin Strohecker, additional reporting by Claire Milhench, graphic by Karin Strohecker; Editing by Alison Williams