Emerging-market assets were out of favor and futures foreshadowed losses in European equities as expectations for a U.S. interest-rate hike grew ahead of a speech this week by Federal Reserve Chair Janet Yellen. Oil slumped after data showed a jump in U.S. stockpiles.

MSCI gauges of developing nations’ shares and currencies dropped by the most in at least three weeks. A gauge of dollar strength advanced for a fourth day after Fed funds futures ended Tuesday showing a 54 percent chance of a U.S. interest-rate hike by December, up from 51 percent on Monday. South Korea’s won weakened versus all 16 major peers after North Korea conducted a missile test, while crude slipped back to below $48 a barrel.

“With emerging markets, it’s about the uncertainty over the Federal Reserve," said Stephen Innes, a currency trader at Oanda Asia Pacific Pte in Singapore. "There’s some expectation that interest-rate hikes are going to eventually hit the market.”

Market sentiment has seesawed in recent weeks as traders look for clues on how aggressive the Fed will be in tightening monetary policy, something Yellen may touch on when she speaks on Friday at a gathering of central bankers in Jackson Hole, Wyoming. At least three Fed officials have made hawkish remarks since the start of last week, though U.S. economic data remain mixed with figures on Tuesday showing a surge in new home sales and a slowdown in manufacturing. A report on Wednesday is forecast to show sales of existing homes held close to a nine-year high.

Caution is evident beyond emerging markets with the Bank of America Merrill Lynch GFSI Market Risk Index — a measure of future price swings implied by options trading on global equities, interest rates, currencies and commodities — hovering close to its lowest level of 2016. U.S. Treasuries are stuck in the tightest monthly trading range since 2006 and a JPMorgan Chase & Co. survey showed investors turned more neutral on the securities in the week ended Aug. 22, with both long and short positions declining.

Stocks

The MSCI Emerging Markets Index dropped 0.8 percent as of 7:06 a.m. London time, led by losses in property companies and banks. Hong Kong’s Hang Seng Index fell as much as 1.1 percent and South Korea’s Kospi index declined 0.3 percent. PetroChina Co. and Cnooc Ltd. are among companies reporting earnings on Wednesday.

Japan’s Topix index rose 0.7 percent, led by gains in exporters as the yen weakened versus the greenback. Toyota Motor Corp. and Sony Corp. added more than 2 percent.

Australia’s S&P/ASX 200 Index was up 0.1 percent. Qantas Airways Ltd. climbed 1.5 percent after the airline announced a record annual profit and its first dividend since 2009.

Futures on the Euro Stoxx 50 Index fell 0.5 percent, while contracts on S&P 500 Index declined 0.1 percent after the U.S. benchmark ended the last session within 0.2 percent of its all-time high. Glencore Plc, the miner and commodity trader run by billionaire Ivan Glasenberg, reported a 66 percent drop in first-half profit.

Currencies

The MSCI Emerging Markets Currency Index fell 0.7 percent. The won weakened 0.5 percent versus the dollar after North Korea test-launched a ballistic missile from a submarine off its east coast.

The Bloomberg Dollar Spot Index rose 0.1 percent, gaining for a fourth day. It’s still down 5 percent for the year, on course for its biggest annual loss since 2007.

“Yellen has to take a clear hawkish stance to justify sustained dollar strength beyond this weekend,” said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. in Singapore. “While we expect the dollar to rebound in coming days, as recently built short dollar positions are likely to be squared off ahead of the symposium, the currency could weaken again on even a subtle shift in Yellen’s views.”

Commodities

West Texas Intermediate crude fell 1.6 percent to $47.30 a barrel in New York after American Petroleum Institute figures showed inventories increased by 4.46 million barrels last week. It rallied 2.2 percent in the last session after Reuters cited unidentified sources in OPEC and the oil industry as saying that Iran is sending “positive signals” it may support joint action to bolster the market.

Copper was down 0.1 percent and near a six-week low after inventories tracked by the London Metal Exchange climbed to the highest level since January. Jiangxi Copper Co., China’s biggest producer, said Wednesday that prices may soon bottom out given looser monetary policies adopted by countries to stimulate growth.

Bonds

The yield on 10-year U.S. Treasuries was steady at 1.55 percent, having held in a tight range this week as investors await Yellen’s speech.

“In terms of Treasuries, we’re not expecting them to be rising too much in yield at this point, and neither falling too much,”said Michael Moen, a Sydney-based investment manager at Aberdeen Asset Management. “All this talk about lower neutral real rates in the U.S., and lower productivity growth, and concerns about financial conditions tightening too much if the U.S. dollar appreciates too much, we think it’s going to make the Fed extremely cautious in how they go about hiking.”

China’s central bank injected cash into the financial system using 14-day reverse-repurchase agreements for the first time since February amid speculation policy makers are looking to increase the use of more expensive, longer-term funding to cool a bond rally that drove the 10-year yield to a decade-low 2.64 percent last week. The nation’s sovereign bonds due May 2026 fell, pushing their yield up by two basis points to 2.78 percent.

Source: Bloomberg