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Five Things You Need to Know to Start Your Day

(Bloomberg) --

The emerging-market rout continues, China looks to calm jittery investors, and a Bank Indonesia rate hike looms. Here are some of the things people in markets are talking about.

Another Ugly Day for Emerging Markets

Emerging-market assets had another rough day. Stocks, bonds and currencies in developing nations are closing out their worst quarter since 2015 and facing a looming global trade war, tightening U.S. monetary policy and a weaker worldwide growth outlook. The consensus is that, whether emerging markets are set for a rebound or a deeper sell-off, in the short term the asset class is at the mercy of trade headlines. Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc. have warned in recent days that more pain lies ahead thanks to U.S.-China trade tensions. The MSCI emerging-markets index slumped as much as 1.3% Thursday, bringing its second-quarter decline to more than 10%. At least developed-market equities bounced back.

PBOC on Standby

China’s central bank said it’ll use comprehensive policy tools to keep economic development steady and stabilize market expectations. The PBOC will keep a close eye on domestic and global economic developments and step up forward-looking policy fine-tuning, according to a statement released Thursday after a meeting of the advisory monetary-policy committee led by Governor Yi Gang Wednesday. The PBOC is about to lower the reserve ratios for some banks next Thursday -- the third cut this year -- as it strives to keep a balance between debt containment and stable growth. Meanwhile, most traders say China is likely to step in and defend the yuan should it fall to the key psychological level of 6.7 per dollar, according to a Bloomberg survey. The offshore yuan fell for an 11th day, the longest-ever losing streak.

A-Shares Have Rough Entry Into MSCI

Global passive funds are buying China’s domestically traded shares for the first time, and it’s not going so well. Stocks in Shanghai have tumbled 13 percent in dollar terms since MSCI Inc. added A-shares  to its indexes at the start of the month. Worries about a slowing economy, tightening liquidity and possible trade war are plaguing the world’s second-largest stock market, while a suddenly tumbling currency is only adding to foreign investor losses. While MSCI’s decision to initially allocate a minuscule weighting to so-called A-shares will limit the fallout, the almost $2 trillion rout is evoking uncomfortable echoes of Chinese market panic just three years ago. A repeat of such turmoil, even on a lesser scale, is likely to undermine efforts in Beijing to encourage foreign inflows and stabilize a market still dominated by speculators.

Trade Tumult  Pushes India, China Closer

President Donald Trump’s moves to protect U.S. trade interests are creating unusual bedfellows in Asia. India and China, longstanding economic and strategic rivals, are seeing a thaw in relations less than a year after the most serious  border flare-up since a war in 1962 threatened ties between the two Asian giants. Since May, China has made it easier for India to export non-Basmati rice, removed import duties on anti-cancer drugs and agreed to share data that predicts river flows between the two countries during the flood season. Chinese President Xi Jinping and Indian Prime Minister Narendra Modi have met twice since April, pledging to strengthen bilateral ties.

Coming Up...

Asia traders will likely welcome the end of a tumultuous week and second quarter come Friday. But there’s lots to digest before happy hour. Bank Indonesia’s meeting will be a highlight, with policy makers expected to raise rates and issue hawkish commentary in the wake of the rupiah’s collapse. South Korea and Japan report industrial output numbers for May, and Vietnam releases CPI, trade and GDP. Over the weekend, China will release PMI data.

What we’ve been reading

This is what caught our eye over the last 24 hours.

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