City skyscrapers stand on the skyline in Doha, Qatar. (Photographer: Gabriela Maj/Bloomberg)

Brazil Boosts Currency Defense as India, Turkey Hike: EM Review

(Bloomberg) -- Emerging markets had a rocky week as plunging currencies prompted India and Turkey to raise interest rates to halt a rout in the rupee and lira, with only partial success. Brazil rolled out enough financial ammunition to arrest the real’s slump to a two-year low.

The MSCI Emerging-Market Currency Index fell for a second week, sliding 0.1 percent, while a gauge that tracks developing-market equities rose 0.7 percent, after dropping almost 3 percent in the previous three weeks. The Bloomberg Barclays index of EM local currency debt declined 0.3 percent, snapping a two-week rally.

Highlights for the week ended June 8:

  • Group of Seven leaders gathered on Friday as Canadian Prime Minister Justin Trudeau attempted to salvage the meeting amid President Donald Trump’s furor on trade
  • Trump will exit the summit early and head directly to Singapore to meet North Korean leader Kim Jong Un; Trump wants Kim to commit to a timetable for nuclear disarmament, according to a U.S. official, and may sign an accord to formally end the Korean War
    • Chinese President Xi Jinping and Russian counterpart Vladimir Putin to meet in China before the Singapore summit
  • ECB Chief Economist Peter Praet signaled the monetary authority’s first formal round of talks on when to stop buying bonds is imminent
  • Brazil’s real strengthened after repeated intervention from the central bank
  • The Turkish lira was the best performing currency after a surprise decision to hike rates on Thursday for the third time in less than two months; additional tightening will come if needed
  • India’s rupee fell even after the central bank unexpectedly raised its policy rate for the first time since 2014, setting the stage for a gradual tightening cycle
  • Argentina secured a $50 billion credit line from the International Monetary Fund to help restore investor confidence
  • The U.S. and China continued to haggle over the shape of a deal to fend off an impending trade war
    • China reiterated that it’s willing to increase imports from the U.S. if the world’s two largest economies meet half-way in trade talks
Brazil Boosts Currency Defense as India, Turkey Hike: EM Review


Asia:

  • North Korea will get relief from international sanctions only if it shows irreversible moves toward denuclearization, U.S. Secretary of Defense James Mattis said
  • The Chinese yuan was among Asia’s best performers; the U.S. reached a deal to allow Chinese telecommunications company ZTE to get back into business
    • China’s foreign reserves fell to $3.11 trillion at end-May from $3.12 trillion in April
    • Exports rose 12.6 percent in May, faster than a forecast of 11.1 percent, while imports surged 26 percent, leaving a trade surplus $24.9 billion
  • Malaysia’s ringgit declined; central bank Governor Muhammad Ibrahim resigned after Finance Minister Lim Guan Eng raised questions about the bank’s purchase of land from the previous administration
    • The government will propose a sales tax and removing a fake news law and GST at parliament sitting starting July 16, Prime Minister Mahathir Mohamad said
  • The rupiah remains under downward pressure; Bank Indonesia Governor Perry Warjiyo said he’s ready to hike again if needed
    • Rupiah’s stability is the central bank’s short-term focus and it sees a daily average rate of 13,800-14,100 next year, the governor said
  • The Philippine peso weakened; inflation accelerated less than expected in May at 4.6 percent and Budget Secretary Benjamin Diokno said price pressures are expected to ease further
    • Policy makers expect timely increase in key rate will help arrest second-round effects by tempering buildup in inflation expectations, according to minutes of May 10 meeting
    • Exports slipped the most since July 2016, falling 8.5 percent on the year in April
  • Thailand’s baht was little changed; the nation will leave its policy rate on hold through 2018, according to a finance ministry official

EMEA:

  • The Russian ruble strengthened; Bank of Russia can manage possible inflation risks from government policies aimed at boosting economic growth, Governor Elvira Nabiullina said; data showed growth in consumer-price index stayed at an annual 2.4 percent for a third month in May
    • The central bank got another reason to resume cutting interest rates from the latest data on inflation, according to First Deputy Governor Ksenia Yudaeva
    • Russia has stable, though slow economic growth, President Putin said
    • Putin signed law on countermeasures against U.S. and its allies that introduce sanctions against Russia, Interfax reported; meanwhile, President Trump broke with G-7 to urge Russia’s return to the group
    • The central bank warned that more than two in five of the country’s lenders would struggle to cope with a sharp decline in oil prices
  • The Turkish lira rallied for a second week; Turkey may hold repeat elections if voters choose an opposition parliament that refuses to cooperate with President Recep Tayyip Erdogan, said Mehmet Ucum, a chief adviser to the president
    • The central bank will “stay independent, period, ” Deputy Prime Minister Mehmet Simsek told German daily Handelsblatt
    • The annual inflation rate rose to 12.2 percent in May from 10.9 percent the previous month
  • The South African rand was among the worst performers as the nation’s economy shrank by an annualized 2.2 percent in the first quarter of the year compared with the prior three months; Purchasing Managers Index fell to the neutral mark of 50
  • Polish zloty outperformed as the central bank kept benchmark interest rate unchanged at 1.5 percent, as expected
  • The Central Bank of Nigeria “may conduct bi-weekly bidding sessions” for Chinese renminbi

Latin America:

  • Brazil’s real rose on central bank intervention; authorities said in minutes of their latest meeting that monetary policy is guided by inflation expectations, economic activity, and the balance of risks; at the time, policy makers decided to hold the Selic at 6.5 percent.
    • Industrial production rose 0.8 percent in April after falling 0.1 percent in March
  • Mexico’s peso was among the biggest losers; annual inflation slowed to 4.51 percent in May from 4.55 percent in April
    • Economy Minister Ildefonso Guajardo said that the U.S. decision to apply tariffs on steel and aluminum exports is designed to pressure the nation into quickly accepting American proposals on Nafta
    • Mexico will slap tariffs of 25 percent on certain cheese products, steel and Tennessee whiskey while imposing taxes of 20 percent on pork, apples and potatoes
    • Trump is seriously considering separate trade negotiations with Canada and Mexico but doesn’t plan to withdraw from the North American Free Trade Agreement, White House economic adviser Larry Kudlow said
  • The Argentine peso extended a seven-week losing streak even as the nation secured a $50 billion deal with the International Monetary Fund; the central bank withdrew its support for the peso at 25 per dollar level, bank president Federico Sturzenegger said

Upcoming data and events:

Monday, June 11Turkey1Q GDP, April current-account balance, expected inflation for next 12 months
Malaysia, MexicoApril industrial production
Tuesday, June 12U.S.-North KoreaSummit in Singapore
IndiaMay consumer price index, April industrial production
ArgentinaMonetary policy decision
Wednesday, June 13Chile Monetary policy decision
TurkeyApril industrial production
South Korealocal elections 
South Africa, BrazilApril retail sales
Thursday, June 14China May retail sales, industrial production, fixed-asset investment
IndiaMay wholesale price index
Friday, June 15RussiaMonetary policy decision
India May trade data
ColombiaApril retail sales, industrial production

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