EM Review: Turkish Woes, South Africa Downgrade, Mexico Peso

(Bloomberg) -- Emerging-market assets had yet another resilient week after minutes from the latest Federal Reserve meeting indicated officials expect inflation to remain persistently low, weighing on the dollar. Equities rose for a fourth week, completing their longest weekly run since August, while currencies also gained for a fourth week, matching the longest winning streak since early September.

Highlights for the week ended Nov. 24:

• Germany’s biggest opposition party is debating whether to begin talks with Angela Merkel on a minority government or a coalition, offering a way to restore political leadership in Europe’s biggest economy
• Turkish 10-year bond yield hit a record high and the lira weakened to an all-time low against the dollar amid a spat over a NATO military exercise and an ongoing case in the U.S. that threatens to expose how powerful figures in Turkey may have helped undermine U.S. sanctions on Iran 
• Chilean peso was the second-worst performer among emerging currencies as business-friendly presidential candidate Sebastian Pinera took a smaller-than-expected lead in the first round of voting, throwing his victory in next month’s run-off into doubt
• A slump in Chinese equities and a continued selloff in its sovereign bonds that sent yields to the highest in three years weighed on emerging-market sentiment in the latter part of the week
• S&P lowered South Africa’s sovereign credit rating on weakening economic and fiscal trajectory
• Mexican peso was the best performer as negotiations for the North American Free Trade Agreement ended during the week with signals of progress; hawkish tone from Bank of Mexico’s monetary policy minutes also supported the peso.
• Brazil’s President Michel Temer on Wednesday struck a tentative deal with Lower House Speaker Rodrigo Maia to put the administration’s controversial pension bill to vote in early December

Asia:

• South Korea’s won was Asia’s best performer before Bank of Korea’s interest rate decision at the end of this month; foreign-exchange authorities said they’re monitoring the currency closely; government’s role to stabilize financial markets shouldn’t be underestimated, according to a South Korean finance ministry official
  • U.S. President Donald Trump said he will return North Korea to the list of state sponsors of terrorism, subjecting the regime to additional sanctions
• The Shanghai Composite Index fell for a second week amid concern the authorities were trying to cool gains
• Thailand’s economy grew 4.3 percent in the third quarter from a year earlier, the fastest pace since 2013
• Malaysia’s inflation slowed more than expected to 3.7 percent in October from 4.3 percent the previous month

EMEA:

• Turkish lira lags all emerging-market peers this week as the currency remained under selling pressure after President Recep Tayyip Erdogan’s latest criticism of the central bank for being on the “wrong path” in using high interest rates to tackle inflation
  • The currency recouped some losses after Cemil Ertem, a senior adviser to Erdogan, said the monetary authority could raise the rate on the so-called late-liquidity window “anytime” without having to wait for next month’s policy review
• South Africa’s rand wiped out week’s advance and reversed into losses after downgrade
  • READ: S. Africa Holds Rate as Uncertainty Lifts Chance of Increase
• Ukraine’s hryvnia posted its steepest drop in 2017
• Emmerson Mnangagwa was sworn in as Zimbabwe’s second president on Friday
  • READ: Mnangagwa Pledges to Revive Zimbabwe’s Democracy, Economy
• Nigeria raised $3 billion in a two-part international bond sale

Latin America:

• Venezuela’s bonds due 2025 and 2026 declared in default by S&P Global Ratings
• Chile’s peso rebounded after a selloff on Monday following first-round voting results; Chilean stocks also recover cautiously as investors weigh odds of a Pinera victory in the second-round runoff scheduled for Dec. 19.
• The latest round of Nafta talks wrapped up without major breakthroughs while a senior U.S. official said it’s not out of the question U.S., Mexico and Canada can agree to a revised North American Free Trade Agreement by March
  • Next round of negotiations said to be scheduled for Jan. 23-28 in Montreal
  • Mexico may face more inflation pressures, majority of policy makers said, according to minutes from its Nov. 9 meeting; the swap market now fully prices a 25bps rate increase in 6 months
• Argentina central bank held its benchmark interest rate unchanged at 28.75% while its Colombian counterpart cut policy rate by 25bps to 4.75%, extending the country’s deepest easing cycle since global financial crisis.

Upcoming data:

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net, George Lei in New York at glei3@bloomberg.net, Alex Nicholson in Moscow at anicholson6@bloomberg.net.

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Joanna Ossinger

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