EMERGING MARKETS-Assets tread water after US CPI data; stocks set for weekly declines

Credit: REUTERS/TYRONE SIU

By Siddarth S

Jan 12 (Reuters) - Emerging markets' assets were range-bound on Friday after a hotter-than-expected U.S. inflation report did not discourage investors from early rate cut bets, while markets also kept a watch on rising tensions in the Middle East.

The MSCI's gauge of emerging market stocks .MSCIEF was up 0.1% at 0920 GMT, while a basket of currencies .MIEM00000CUS ticked up 0.1% against a steady dollar.

For the week, the broader stocks index is on track to lose 0.6%, extending its weak start to the New Year.

Oil prices rose 2% on Friday, even as market participants closely watch the escalating tensions in the Middle East after the United States and Britain carried out air and sea strikes on Houthi military targets in Yemen in response to attacks by the Iran-backed group on shipping in the Red Sea.

Data on Thursday showed U.S. consumer price index (CPI) rose 3.4% on an annual basis in December compared with forecasts of a 3.2% rise, suggesting it was probably too early for the Federal Reserve to start cutting interest rates.

Core inflation, which excludes volatile items like food and energy, slipped on a yearly basis.

Yet, traders are betting on a 68.1% probability for the Fed to cut rates in March, according to the CME FedWatch tool.

"Rate expectations were not moved by slightly hotter-than-expected U.S. CPI, and support for the dollar has mostly come through the risk-sentiment channel," ING economists wrote in a note.

"Range-bound trading may persist despite conditions for a stronger dollar," they added.

The dollar index =USD and the 10-year U.S. Treasury yields US10YT=RRrallied initially after the CPI readings but ended lower on Thursday.

In Europe, the Hungarian forint EURHUF= slipped 0.1% after inflation in December was cooler-than-expected on an annual basis.

Czech's crown EURCZK= gained 0.3% after the country's current account showed a surplus of 43.52 billion crowns ($1.94 billion) in November, while domestic retail sales also rose on an annual basis.

The Russian rouble RUBUTSTN=MCX hit over seven-week highs and strengthened past 88 against the dollar, boosted by the state's new foreign currency interventions plan and higher oil prices after Western strikes against Houthi military targets in Yemen. RU/RUB

The rouble was last seen at 88.0675, after hitting a high of 87.9675.

Across Asia, both China's blue-chip index .CSI300 and Hong Kong shares .HSIfell 0.4% each after mixed economic data.

China's exports grew 2.3% in December from a year earlier, while consumer prices declined for a third month in December highlighting persistent deflationary pressures in an economy struggling to mount a solid recovery.

Turkey's lira TRYTOM=D3 weakened and hovered around 30 to the dollar, while the country's current account balance turned to a larger-than-expected deficit of $2.72 billion in November after two months of surpluses, central bank data showed.

(Reporting by Siddarth S in Bengaluru; Editing by Krishna Chandra Eluri)

((Siddarth.s@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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