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Turkey Holiday Eases Gloom as Trump Tweets Dominate: EM Review

(Bloomberg) -- Emerging-market stocks had their best week since February and currencies rose after concern eased about contagion risks from Turkey while China moved to bolster the yuan.

Weekly Moves:

  • MSCI Emerging Markets Index of shares climbed 2.7 percent
  • MSCI EM Currency Index halted a three-week slide, gaining 0.3 percent
  • Bloomberg Barclays global EM local currency government bond index rose 0.4 percent

Listen here: Emerging Markets Weekly Podcast

Highlights for the week ended Aug. 24:

  • U.S. central bankers are ready to raise interest rates again as long as the economy stays healthy, according to minutes of the Federal Reserve’s most recent policy meeting
  • Treasuries, commodities and stocks all advanced as Fed Chairman Jerome Powell’s dovish comments at Jackson Hole fueled a rally in risk assets
  • U.S. President Donald Trump said he expected Powell to be a cheap-money Fed chairman and lamented to wealthy Republican donors at a Hamptons fundraiser that his nominee instead had raised interest rates, according to three people present
  • China and the U.S. had “constructive, honest” talks on trade issue Aug. 22-23 in Washington, according to a statement on Ministry of Commerce; the two sides had low expectations for the meetings and no further talks were scheduled, a person familiar with the discussions said
  • Trump’s former lawyer, Michael Cohen, pleaded guilty to illegal campaign finance charges over hush money paid to a porn actress and a former Playboy model, all but naming Trump as having ordered him to do it
  • Trump said in a tweet that he’s asked U.S. Secretary of State Mike Pompeo to “closely study the South Africa land and farm seizures and expropriations”; South Africa’s Department of International Relations and Cooperation said it met with a representative from the U.S. Embassy and expressed its disappointment with Washington’s failure to use available diplomatic channels
  • Russia’s central bank said it will suspend sales of rubles to purchase foreign exchange through the end of September in an effort to steady the currency
Turkey Holiday Eases Gloom as Trump Tweets Dominate: EM Review


  • China’s yuan was among Asia’s best performers as the PBOC reintroduced "counter-cyclical" factor in currency fixing to counter the bias toward devaluation
    • China won’t use competitive currency devaluation or the foreign exchange rate as a tool to cope with trade friction, according to a senior central bank official
    • Trump said China’s economy is no longer on a swift pace to be larger than the U.S.
    • Trump accused China and the European Union of manipulating their currencies, in an interview with Reuters
  • Pompeo appointed Steve Biegun, former head of government affairs at Ford Motor, to lead talks with North Korea; Trump later canceled Pompeo’s planned trip there, citing a lack of "sufficient progress" in denuclearization
    • North Korea continued activity at one of its nuclear facilities after the April summit with South Korea at which leaders agreed to cooperate toward complete denuclearization, according to an International Atomic Energy Agency annual report on the country
  • Thai baht rose for a second week; the Bank of Thailand’s monetary policy committee discussed "conditions and appropriate timing to begin normalizing monetary policy in the future," according to the minutes of Aug. 8 interest-rate decision
    • Prime Minister Prayuth Chan-Ocha said general elections are likely on Feb. 24
    • Economy grew more than forecast in the second quarter and Bank of Thailand Governor Veerathai Santiprabhob said there is less need now for an extremely accommodative stance from the central bank since the recovery is clearer
    • Commerce Ministry expects export growth in 2018 to reach its 8 percent target
  • Indonesia has a plan to bring foreign ownership of its sovereign bonds down to 20 percent from about 38 percent over five years, said Scenaider Siahaan, director of debt portfolio and strategy at the finance ministry; the Jakarta Composite Index completed its best week in more than a month while the rupiah fell
    • The nation can win another sovereign rating upgrade if it ensures stronger fiscal and external metrics without affecting economic growth, according to S&P Global Ratings
    • Bank Indonesia will be data-dependent when deciding whether to hike again this year and pressures on the rupiah are likely to persist, Deputy Governor Budi Waluyo said
  • The Malaysian ringgit weakened for a 10th week; reported state revenue is inaccurate and larger than it actually was, as previous government recognized withheld tax refunds as part of revenue instead of paying out, Finance Minister Lim Guan Eng said


  • Turkish lira advanced 0.2 percent as onshore financial markets were shut for a holiday; U.S.-led attack on economy is a chance to build a new monetary and trade system and break dependence on dollar, said Cemil Ertem, an adviser to President Recep Tayyip Erdogan
    • Credit quality of Turkish insurance companies has deteriorated as a result of macroeconomic instability and the fall in the value of the lira, despite not having exposure to foreign-currency refinancing risk, Fitch Ratings said; it also said foreign-currency mismatches and reliance on short-term borrowings exacerbate pressure on the Turkish corporate ratings from a weaker lira
    • Qatar agreed to help the Turkish economy weather a currency rout with a credit line to backstop its financial system
  • The rand was the best-performing emerging-market currency; South African Reserve Bank Governor Lesetja Kganyago said he’d be available to serve another five years at the helm of the central bank
    • Kganyago rejects call for nationalization and said politicians should respect independence of the central bank
    • Inflation accelerated to the highest level in 10 months in July, driven by increased fuel prices
    • Poultry industry group sought retaliation against Trump tariffs
    • South Africa’s Land and Agricultural Development Bank has warned expropriating farm land without compensation could cost the government 41 billion rand ($2.8 billion) if it’s forced to repay the state company’s debt immediately
    • South Africa’s central bank will take a “measured approach” on monetary policy in the face of heightened currency volatility, Reserve Bank Deputy Governor Francois Groepe said
  • Russia’s ruble declined; government will respond to U.S. sanctions without harming itself, RIA Novosti reported, citing Deputy Foreign Minister Sergei Ryabkov
    • The U.S. sanctioned owners of six Russian ships over claims they’re helping transfer refined petroleum products to North Korean vessels
    • The State Department on Friday also announced details of limited new sanctions that target remaining sources of foreign assistance and arms sales to Russia, and deny any U.S. credit to Russia, including through the Export-Import Bank
  • The Polish zloty advanced a second week; most members of Poland’s Monetary Policy Council support view that stabilization of interest rates in coming quarters helps maintain balanced economic growth, according to minutes of its July 10-11 meeting
  • Hungary’s forint also strengthened for a second week; the National Bank of Hungary left all interest rates unchanged on Tuesday, reiterating a pledge to keep conditions easy for the time being
  • Saudi Arabia has formally put the initial public offering of its giant oil company on hold while Aramco focuses on buying a strategic stake in local petrochemical group Sabic for as much as $70 billion

Latin America:

  • Mexico’s peso erased gains after a report that President-elect Andres Manuel Lopez Obrador’s stance on foreign investment in oil sectors was a key hurdle for a U.S.-Mexico bilateral agreement over Nafta
    • Nafta talks are poised to continue, pushing up against the goal for a deal by the end of the month, as the U.S. and Mexico work out issues in order to reincorporate Canada
    • Consumer prices rose more than expected in the first half of August as agricultural and energy costs increased, with annual inflation at 4.81 percent, compared with 4.77 percent at the end of July
    • Trump said he has better relationship with new Mexican president
  • The Brazilian real dropped more than 4 percent, making it the worst performer among developing-nation currencies; Brazil’s government sees less foreign-exchange volatility because large currency operators changed their bets roughly three months ago, according to two officials with knowledge of the matter
    • Fernando Haddad, who’ll likely replace former President Luiz Inacio Lula da Silva as Workers’ Party candidate, tries to approach banks and financial market players to soften concerns about the party, Estado reported
    • Former Army Captain Jair Bolsonaro would lose to all but one of the leading presidential candidates in a second round, run-off election, a new poll showed; Bolsonaro leads Datafolha poll without Lula, according to Folha de S.Paulo
    • Lula gained popular support in the latest opinion poll, but may face challenges in getting his likely heir elected if he’s barred from running in the October election
  • The Chilean peso posted its first weekly gain in four
    • Chilean President Sebastian Pinera signed tax modernization bill, a revenue-neutral measure intended to make system simpler and fairer
  • Venezuela published new price caps for basic food products after a massive devaluation and an increase in the minimum wage that could put the private sector in jeopardy; the government raised prices by as much as 250 percent on 25 food products

Upcoming Data:

Monday, Aug. 27BrazilJuly current-account balance
MexicoJuly trade balance
Tuesday, Aug. 28ThailandJuly manufacturing production index
MexicoJuly unemployment rate
Wednesday, Aug. 29TurkeyJuly trade balance
Thursday, Aug. 30BrazilAug. inflation IGPM 
Friday, Aug. 31South KoreaMonetary policy decision, July industrial production
ChinaAug. manufacturing, non-manufacturing PMI
India, Czech Republic2Q GDP
ThailandJuly current-account balance
South AfricaJuly trade balance

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