Emerging-Market Stocks Rebound as Trade Tension Eases: EM Review

(Bloomberg) -- Emerging-market stocks and currencies rebounded this week as trade tensions eased in the absence of retaliation plans from China after President Donald Trump’s latest escalation.

The MSCI Emerging Market Index advanced 1.4 percent, snapping four weeks of losses, while an index tracking developing-market currencies fell 0.1 percent, marking its seventh weekly decline. The Bloomberg Barclays index of local currency EM govt bonds was little changed.

Highlights for the week ended July 13:

  • The U.S. and China signaled they were open to resuming negotiations over trade after days of exchanging retaliatory threats, although Treasury Secretary Steven Mnuchin said Beijing must commit to deeper economic reforms
  • Earlier in the week, the U.S. released a list of targeted products for tariffs of 10 percent on an additional $200 billion of Chinese goods; Beijing described the move as “totally unacceptable” bullying and vowed to retaliate
  • China’s monthly trade surplus with the U.S. rose to a record in June and exports to the nation also soared. The trade surplus with the U.S. was $28.97 billion, the highest in any month in data going back to 1999
  • Turkey’s lira was the worst performer; President Recep Tayyip Erdogan named his son-in-law as economy czar in a new administration and removed the last member of an investor-friendly financial team
    • Fitch cut Turkey’s credit rating to BB from BB+ with negative outlook, citing risks to macroeconomic stability and deterioration in economic policy credibility
    • Erdogan was sworn in earlier in the week as an executive president with vastly expanded powers and issued a decree empowering him to name the head of the central bank and deputy governors
    • Treasury and Finance Minister will do what is necessary for the dollar and interest rates to fall, AHaber television cites Erdogan as telling reporters during his trip to Brussels
    • Turkish Treasury and Finance Minister Berat Albayrak pledged to rein in inflation and highlighted central bank independence in his first interview since his appointment

Asia:

  • The Shanghai Composite Index ended seven weeks of losses, while the onshore yuan posted five straight weeks of declines; the Trump administration said ZTE Corp. took another step toward ending a U.S. ban on the company doing business with American suppliers
    • Foreign reserves rose $1.51 billion to $3.112 trillion last month, the first gain since March
    • The consumer price index gained 1.9 percent year-on-year in June, compared with 1.8 percent increase in May
  • South Korea’s won completed its sixth weekly decline and Kospi index fell for a fourth week; Bank of Korea held policy rate unchanged at 1.50% as expected
  • Trump said in a tweet that he believes North Korean leader Kim Jong Un will stick to his promise to give up nuclear weapons, while suggesting China may be trying to undermine the agreement
  • India’s rupee was the best performer in Asia; inflation accelerated to 5 percent in June on year from 4.87 percent the previous month, while industrial production increased 3.2 percent in May from a year earlier, compared with a revised 4.8 percent increase the previous month
  • The Thai baht extended a 5-week losing streak; the Bank of Thailand has no need to hurry to follow interest rate hikes by other central banks, Governor Veerathai Santiprabhob said; he also said during the week that the central bank steps in sometimes to “take care of baht”
    • Commerce ministry may raise export growth target this year to 9 percent from 8 percent because of growing global demand, its minister Sontirat Sontijirawong said
  • Indonesia’s rupiah fell for a fifth week even as Bank Indonesia said it will use all available instruments to guard its currency
  • The Malaysian ringgit fell for a fourth week; the country kept its benchmark interest rate unchanged at 3.25 percent, as predicted
    • Swiss investigators have found that up to $7 billion of funds were misappropriated from Malaysian state fund 1MDB
  • The Philippines Stock Exchange Index had the best week since April 2017; Felipe Medalla, a member of central bank’s policy-making Monetary Board, said another rate hike in August makes sense to dispel market perceptions that the central bank prefers a weaker currency and is behind the curve

EMEA:

  • Turkey’s lira fell to an all-time low Thursday before paring losses, currency was still down more than 5.5% on the week; current-account deficit came in at $5.89 billion in May, more than estimate $5.3 billion shortfall
    • The government is planning to introduce so-called “Regional Crisis Management” plan after state of emergency expires July 18
  • The South African rand rose for a second week; the nation’s manufacturing increased 2.3 percent in May from a year earlier, the most in four months
    • Business confidence slumped for a fifth month to 93.7 in June from 94 in May
  • The ruble trimmed the week’s gains on Friday after the U.S. indicted 12 Russian spies for hacking in 2016; The finance ministry laid out its most ambitious borrowing program yet with a plan to raise almost 5 trillion rubles ($80 billion) domestically over the next three years
    • Second-quarter current-account surplus expanded to $22.3 billion from $1.9 billion year ago, the central bank said
    • Money managers from Swedbank Robur and EI Sturdza Investment Funds say the Trump-Putin summit on Monday is reason enough to buy Russian stocks and bonds

Latin America:

  • The Brazilian real rose for a second week; the government projects 1.6 percent growth this year in an updated report on federal revenues and expenses to be released later this month, Estado says, citing an interview with Minister of Finance Eduardo Guardia
    • The International Monetary Fund sees 1.8 percent growth in 2018 for Brazil, it said in a statement, cutting its April forecast of 2.3 percent
    • Former President Luiz Inacio Lula da Silva may appoint his replacement in presidential race, said PT lawmaker Wadih Damous
  • Mexico’s peso advanced for a fourth week while the 10-year Mbono yield climbed for a second week after the election; President-elect Andres Manuel Lopez Obrador released a list of reforms he’s looking to send to Congress
    • U.S. Trade Representative Robert Lighthizer and Mexican officials are constantly exchanging information and consulting stakeholders, said a spokesperson who declined to be identified by name
    • Lopez Obrador said he seeks GDP growth of 4 percent per year
    • Annual inflation quickened to 4.65 percent in June from 4.51 percent in May
  • The Argentine peso rose for a second week; President Mauricio Macri named Pablo Quirno, the former finance ministry cabinet chief, as a central bank director
    • Officials reiterated that they will monitor monetary aggregates more closely and keep intervening in secondary Lebac market
    • Treasury Ministry discussed with provincial economy ministers that the government will need to cut 300 billion pesos ($11 billion), according to Infobae

Upcoming data:

Monday, July 16China2Q GDP, June retail sales, industrial production, fixed-asset investment
IndonesiaJune trade data
PolandMay current-account balance, trade data
IndiaJune wholesale prices
Tuesday, July 17TurkeyMay industrial production
ArgentinaJune consumer price index
Wednesday, July 18MalaysiaJune consumer price index
South AfricaJune consumer price index, retail sales
RussiaJune retail sales, unemployment rate
PolandJune sold industrial output
Thursday, July 19Indonesia, South AfricaMonetary policy decision
Friday, July 20Thailand  June customs trade data
BrazilJuly IPCA-15 inflation
PolandJune retail sales
TaiwanJune export orders

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