EM Review: Brazil Pension Mess Weighs on Real as Turkey Rebounds

(Bloomberg) -- Emerging-market assets posted their first back-to-back weekly loss since late October as progress on the U.S. tax overhaul lifted the dollar. Most developing-nation equity indexes retreated after several weeks of gains.

The MSCI Emerging-Market Currency Index posted its largest weekly loss since the five-day period ended Oct. 27 and a gauge tracking developing-nation stocks fell to a two-month low before rebounding. The Bloomberg Barclays index tracking EM dollar debt was little changed.

Highlights for the week ended Dec. 8:

• The Bloomberg Dollar Spot Index had its best week in almost a year as congress passed a two-week extension of federal funding that averts a government shutdown.
• President Donald Trump recognized Jerusalem as Israel’s capital and announced he would begin moving the U.S. embassy there, drawing criticism from nations including Malaysia, Indonesia and Turkey
• Turkish inflation accelerated in November to the fastest since 2003 at 12.98% as a weaker lira and higher energy, food and transportation costs weighed on prices; the central bank reiterated its pledge to keep monetary policy tight until the inflation outlook comes into target, and if necessary, to tighten it further
• Brazil cut its key rate by 50 basis points to 7%, bringing benchmark borrowing costs to a record low, and signaled a slower pace of easing at its next meeting
• The Brazilian government delayed a crucial vote in the Lower House on pension system overhaul, in absence of the 308 necessary votes to pass the bill.

Asia:

• South Korea’s won was the worst performer among Asia’s emerging currencies; the U.S. and South Korea began a 5-day joint air exercise on the Korean peninsula; before the start of the drill on Dec. 4, North Korea said the U.S. is “begging” for a nuclear war by planning the “largest-ever” joint aerial drill with South Korea
  • North Korea wants dialogue with U.S. on security guarantee and Russia is ready to serve as intermediary between Washington and Pyongyang, Interfax reports, citing Foreign Minister Sergei Lavrov
  • South Korea’s October current-account surplus narrows to $5.72 billion, least since April, BOK says
• China’s overseas shipments unexpectedly jumped as global demand remained firm, while import growth was steady; exports climbed 12.3 percent year-on-year in November and imports gained 17.7 percent
• Reserve Bank of India kept its benchmark repurchase rate unchanged at 6 percent
• Indonesia returned to the global bond market with its first offering of notes registered with the U.S. Securities and Exchange Commission; nation is said to plan to auction dollar Islamic bonds in the first quarter
  • Bank Indonesia said it sees no reason to change policy rate at this time

EMEA:

• The leader of Hamas, the Palestinian militant group that rules the Gaza Strip, called for a third uprising against Israel after Trump declared Jerusalem as the Israeli capital
• Turkish lira was this week’s best performer, appreciating 2 percent on prospects for tighter monetary policy. President Recep Tayyip Erdogan also clarified his earlier remarks on business people who attempt to take their wealth abroad, saying the country has “free market economy” and is not limiting capital flows.
• South African rand posted the second best performance as political concerns eased; Deputy President Cyril Ramaphosa won endorsement from most branches of the ruling African National Congress to succeed President Jacob Zuma as party leader, giving him an edge -- but not a guarantee of victory -- in this month’s election.
• Polish central bank held its benchmark interest rate unchanged at 1.5%; zloty traded little changed after Deputy Prime Minister Mateusz Morawiecki, who’s been in charge of economic policy, was nominated to become premier.
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Latin America:

• Brazilian real was mostly weighed down by political uncertainties surrounding the pension bill. President Michel Temer said Friday that vote in Lower House will take place on Dec. 18 or 19, days before congressional recess.
  • Brazil’s central bank signaled it might be nearing the end of its easing cycle, though some analyst sees pension reform success as a key condition for new rate cuts.
• Mexican peso fell more than 1.5 percent, the worst emerging-market performer in response to gains in the Bloomberg Dollar Index. Comments from the nation’s ambassador to Washington that Nafta has "50-50" odds of surviving also hurt sentiment
  • Expectations of a 25bps rate increase on Dec. 14 gain steam after Banxico’s new governor said all options are on the table and data showed consumer prices rose more than expected in November, climbing 6.63 percent from a year earlier, compared with the median estimate 6.61 percent.
• Argentine economists polled in November central bank survey raised 2017 inflation expectations to 23.5 percent from 23 percent. The peso weakened slightly this week past 17.25 level after 4 straight weeks of gains.
• Colombian consumer prices increased 4.12 percent in November year-on-year after 4.05 percent gain in October; central bank sees high chances of inflation at 3 percent next year, according to minutes of Nov. 24 policy meeting
• Chilean peso extended 3-week losing streak as copper tumbled almost 7 percent over past 10 trading sessions; central bank cut inflation forecast while maintaining growth expectation in fourth-quarter monetary policy reports, leaving door open to further rate cuts.

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, Alec D.B. McCabe

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