Investors Look Past Trade War Amid Risk-On Sentiment: EM Review

(Bloomberg) -- Emerging-market stocks, currencies and bonds were unfazed by an escalation in the U.S.-China trade dispute, rising for a second week as the dollar retreated.

AssetsWeekly Moves
MSCI EM stocks index+2.22 percent
MSCI EM FX index+0.67 percent 
Bloomberg Barclays Global EM Local Currency bond index+0.06 percent

Highlights for the week ended Sept. 21:

  • The Chinese yuan had its first weekly gain this month as Premier Li Keqiang said the country won’t devalue its currency in order to make its exports more competitive amid trade tension with the U.S.
  • U.S. President Donald Trump continued to hit out at China days after announcing another round of tariffs, signaling the trade war won’t end any time soon
    • Trump ordered his administration to levy 10 percent tariffs on about $200 billion in Chinese goods from Sept. 24 and to increase the rate to 25 percent on Jan. 1 if Beijing refuses to offer trade concessions; in retaliation, Beijing has announced plans to impose duties of 5 percent to 10 percent on $60 billion of U.S. goods, ranging from wheat to textiles
  • China is planning to cut the average tariff rates on imports from the majority of its trading partners as soon as next month, two people familiar with the matter said, in a move that will lower costs for consumers
  • Brazil’s real halted two weeks of losses after the central bank kept its policy rate at a record low of 6.5 percent, but warned of growing risks to inflation amid doubts over economic policy due to the presidential election next month and global trade disputes
  • South Africa’s rand was among the best emerging-market performers as the central bank held its key interest rate at a two-year low of 6.5 percent after the economy tipped into a recession
  • Turkey announced a plan to monitor banks’ health, while stopping short of laying out measures to alleviate worries about its bad-loan burden
  • Argentina’s peso was the top emerging-market performer as International Monetary Fund spokesman Gerry Rice said the fund is in full support mode for Argentina and sees a sense of urgency
  • North Korean leader Kim Jong Un wants to hold a second summit with President Trump soon, South Korean President Moon Jae-in said after a three-day visit to North Korea
Investors Look Past Trade War Amid Risk-On Sentiment: EM Review

Asia:

  • The Shanghai Composite Index had its best week since March 2016 amid risk-on sentiment; the nation’s holdings of U.S. Treasuries fell to a six-month low in July
    • READ: Autos Lead Rally in China Consumer Stocks on Government Boost
    • READ: China Stocks Jump in Afternoon Trading in Rebuff to Trump Levies
  • U.S. Secretary of State Michael Pompeo called Wednesday for a new round of talks with North Korea with the goal of ridding the North of nuclear weapons by the end of President Trump’s first term
    • South Korean President Moon’s approval rating rose to 61% this week from 50%, a Gallup Korea poll showed
  • Indonesia’s commodity exporters will have to keep half of their earnings at home and convert them to rupiah under new rules aimed at reining in the current-account deficit to protect the the local currency
  • Reserve Bank of India is considering allowing oil retailers to purchase dollars directly from the central bank instead of the market, television channel ET Now reported
    • India’s main opposition Congress party is working with local politicians in some of the biggest states to form a broad anti-Modi coalition, according to P. Chidambaram, a senior party leader and former finance minister
  • The baht extended a two-week winning streak; Bank of Thailand voted five to two to hold its policy rate unchanged at 1.5 percent with the number of policy makers voting for a 25-basis-point hike rising to two from one at the June and August meetings; the central bank kept its 2018 GDP growth estimate at 4.4 percent
    • Central bank Assistant Governor Jaturong Jantarangs said the monetary policy committee doesn’t want capital flows to spur big swings in the baht
  • The Philippines Stock Exchange Index fell for a third week amid inflation concern; Bangko Sentral ng Pilipinas Governor Nestor Espenilla said the monetary authority is ready to deliver “strong monetary action” at the Sept. 27 rate meeting, while also promising to roll out more measures to ward off currency speculation; the central bank is seeing increased speculative activity in the foreign-exchange market and is rushing prudential measures to discourage it, Espenilla said
    • The central bank said it is prepared to defend the peso against any speculation, and is mindful of the inflationary impact of any sustained pressure on the currency
    • Damage to farm output and infrastructure caused by Typhoon Mangkhut was estimated at 14.27 billion pesos ($264 million), the Agriculture Department said
  • Malaysian ringgit advanced a second week; the nation’s consumer prices rose 0.2 percent year-on-year in August, less than the estimate for an 0.4 percent increase
    • Former prime minister Najib Razak faces 25 charges linked to $681 million that appeared in his personal bank accounts, as authorities speed up efforts to prosecute those who allegedly embezzled money from the 1MDB state fund

EMEA:

  • South Africa’s rand had its best week since April 2016 as some of the more controversial provisions were eased in a final version of the country’s Mining Charter, which was approved by the cabinet
    • South Africa’s FTSE/JSE Africa All Shares Index rose as mining companies advanced; Anglo American rallied more than 9 percent on the week
    • The South African Reserve Bank held its key interest rate at a two-year low as policy makers warned that investor sentiment toward emerging markets is a risk to the currency and adds to inflation pressures
    • A close ally of President Cyril Ramaphosa was elected the leader of the country’s biggest labor union group, bolstering the odds that the group will back him and the ruling African National Congress in next year’s elections
  • Turkey’s Borsa Istanbul 100 Index rose for a fifth consecutive week, led by financial stocks, amid speculation the government will help banks tackle an expected pile-up of bad loans
    • The lira retreated after two straight weeks of gains
    • Consumer confidence slumped by the most on record in September
  • A top Russian central banker dismissed a suggestion from the Finance Ministry that foreign-currency purchases could be restarted before the end of the year in a rare display of public discord among the country’s key policy makers
    • MOEX stock index rose to an all-time high; oil and gas companies were enjoying record production levels and the highest prices ever in the local currency, overshadowing concern about potential tougher U.S. sanctions
  • Poland’s WIG20 Index advanced as investors positioned themselves for FTSE’s reclassification of the local market to developed from emerging

Latin America:

  • Argentina’s Merval stock index extended a four-week winning streak while yields on the nation’s 100-year bond fell below 9 percent for first time since Aug. 1; investors are increasingly confident the IMF will grant Argentina’s request to expand its credit line from current $50 billion
    • The country’s economy shrank the most in four years in the second quarter, with gross domestic product falling 4.2 percent from the year-earlier quarter
    • An Argentine federal judge formally indicted former president and current Senator Cristina Fernandez de Kirchner on corruption charges as part of a widespread graft probe that has embroiled many officials in her former government
  • Brazil’s real had its best week since December 2016 and the Ibovespa surged
    • Former Army captain Jair Bolsonaro leads the presidential race with 28 percent, edging up from 26 percent, according to the latest opinion poll; many investors favor him over two left-wing candidates who pledge to undo some market-friendly legislation approved by the current administration
    • Bolsonaro, who suffered a near-fatal stabbing on Sept. 6, said he would be out of hospital by month-end
  • The Mexican peso advanced a second week; Nafta risks continues to loom, but worst case scenario is off the table for now after progress on negotiations between the U.S. and Mexico, says Rabobank strategist Christian Lawrence
    • U.S. and Canada failed to reach an agreement on Nafta after extensive trade talks
    • The three countries will need to publish a deal by Sept. 30 in order to sign an accord before President-elect Andres Manuel Lopez Obrador takes office Dec. 1
  • The Chilean peso had its best week since 2011 as copper prices climbed; stocks also rallied

Upcoming data:

Monday, Sept. 24Brazil Aug. current-account balance
PhilippinesAug. budget balance
Tuesday, Sept. 25ThailandAug. manufacturing production
TaiwanAug. industrial production, unemployment rate
NigeriaMonetary policy decision
Wednesday, Sept. 26Czech RepublicMonetary policy decision
Thursday, Sept. 27Philippines, Indonesia, TaiwanMonetary policy decision
BrazilSept. inflation IGPM 
Argentina 2Q current-account balance
Friday, Sept. 28ChinaSept. Caixin manufacturing PMI
ThailandAug. current-account balance
Turkey, South AfricaAug. trade balance
ColombiaMonetary policy decision
South KoreaSept. consumer confidence

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