(Bloomberg) — Emerging-market assets are set for the best week since July as a labor-market slowdown in the US bolstered speculation the Federal Reserve will hold interest rates steady through year-end, boosting global markets.

A key gauge of emerging-market equities climbed 2.2%, while a counterpart benchmark for developing currencies added 0.8%. Mexican stocks rose by the most since November 2020 after cooling US jobs data backed bets that the Fed was done raising borrowing costs in the US, Mexico’s top trading partner. The Mexican peso also advanced and is set for the biggest weekly jump since 2020.

The Hungarian forint was the best performing currency in emerging markets, followed by the Colombian and Chilean pesos, which both advanced to the strongest levels since September.

The rally came on the back of broad gains in global assets after US job growth moderated by more than expected in October, while the unemployment rate rose to an almost two-year high. The data fueled speculation the Fed may be done with its aggressive tightening campaign. The dollar declined for a third day and US 10-year yields mostly held a drop from Thursday.

“It looks like the hot labor sector can indeed be cooling down after being the beacon of resilience that kept the Fed looking to hike to dent economic demand,” said Juan Perez, director of trading at Monex USA. “If employment starts dwindling, that is when you may notice inflationary deceleration moving into deflationary pressures.” 

Emerging market stocks are up 3.4% this week after two straight declines as investors reprice odds of Fed hikes and assess fallout from the conflict in the Middle East. Currencies are on track for a 1.2% weekly gain.  

The Israeli shekel has gained 3.5% this week after strengthening beyond 4 against the dollar, on course for its biggest advance since July, with the central bank on guard to rein in excessive moves. US Secretary of State Antony Blinken arrived in Tel Aviv for talks, saying ahead of his trip that Washington is “determined to deter any escalation” in the nation’s war with Hamas. 

In Asia, India’s auction of the debut 50-year bond met with firm demand, underscoring growing interest from insurance and pension funds for ultra-long paper. The government sold 100 billion rupees ($1.2 billion) of the 2073 bond at a cutoff yield of 7.46%, lower than the 7.48% forecast in a Bloomberg survey. 

In Africa, Nigeria’s naira jumped against the dollar on the parallel market and on crypto exchanges on Friday, a day after authorities said they took steps to clear a backlog of matured foreign-currency forward contracts that have hampered dollar inflows.  

Concerns that Fed rate hikes could continue into 2024 as part of a “higher-for-longer” pattern in monetary policy have weighed on sentiment in recent months. While those worries may have eased somewhat, investors are seeking more evidence of “a firm peak in US rates” before turning bullish on emerging markets, said Henrik Gullberg, macro economist at Coex Partners Ltd. 

“Is the worst behind us?” Gullberg said. “If so, then the market can start price in a global recovery and EM will do well.”

(Updates pricing throughout starting with headline)

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