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FX hits 2-M Low, Stocks Slammed by Chinese Tech Crackdown

* Tencent, Alibaba and Baidu down between 3.7% to 4.6%

* China largest component of MSCI EM stocks index

* Polish meeting due later in the day

* Russia’s rouble leads EMEA FX losses, volatility spikes

* Turkish lira bucks the trend (Adds details on volatility gauges, Didi Global)

July 8 (Reuters) - Emerging market currencies sank to a two-month low on Thursday on growing worries over a slowing post-COVID economic recovery, while stocks tumbled 1.6% on jitters over a Chinese crackdown on technology firms.

MSCI’s index of emerging market currencies dropped 0.3% to a two-month low after minutes of the Federal Reserve’s recent meeting affirmed the bank’s timeline to start tightening policy.

Russia’s rouble was the worst performing currency in Europe, the Middle East and Africa, sinking nearly 1% to 75.2372 - its lowest level to the dollar in two months.

A one-month gauge of implied volatility in the rouble shot up to its highest level in two months.

Turkey’s lira bucked the trend, trading largely flat to the dollar after Reuters reported that the country was considering a fresh capital injection for state banks to shore up economic growth.

A one-month gauge of implied volatility in the lira hovered just above a one-year low.

In China, fears of a slowing post-COVID economic recovery were heightened after the country’s cabinet said authorities would use timely cuts in banks’ reserve requirement ratios (RRR) to support the economy.

The yuan fell 0.1% to the dollar, while the yield on Chinese 10-year sovereign bonds posted its sharpest fall in nearly a year.

“The signalling of a potential easing in the RRR shows that policymakers are concerned with ensuring sufficient liquidity reaches the economy,” said Sacha Tihanyi, head of emerging markets strategy at TD Securities.

Spiking cases of the Delta variant of the coronavirus across the globe have also soured sentiment over a recovery, hurting emerging markets in recent weeks.

MSCI’s index of emerging market stocks sank 1.6% to a more-than seven-week low. Heavyweight Chinese and Hong Kong stocks were sold off in droves after the government ordered ride-hailing app Didi Global to be removed from mobile app stores, and fined major tech firms.

Didi’s shares tumbled nearly 7% in U.S. premarket trade, with the company having shed about $16 billion in market capitalisation this week.

Tencent and Alibaba Group, the second and third largest EM stocks, and Chinese major Baidu Inc , fell between 3.7% and 4.6%.

South African stocks led declines in EMEA with a 2.1% drop. Shares of tech firm Naspers Ltd, which holds a sizeable stake in Tencent, fell 2.8%.

In central Europe, Poland’s zloty fell 0.3% to the euro ahead of a central bank meeting later in the day. The bank is widely expected to hold interest rates slightly above zero.

Losses in Hungary’s forint were muted after stronger-than-expected inflation furthered the case for tighter monetary policy.

Reporting by Ambar Warrick Editing by Raissa Kasolowsky and Chizu Nomiyama

Source: Reuters


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