U.S.-China Trade Talks and Turkey Turmoil Dominate Emerging Markets

(Bloomberg) -- Emerging-market stocks gained every day of last week as the outlook improved for global growth and the U.S. and China made progress in trade talks. The U.S. jobs report gave equities an extra fillip on Friday. Gains in the dollar offset the boost for developing-nation currencies, which eked out a small advance.

The following is a roundup of emerging-markets news and highlights for the week ending April 7.

Read here, our emerging-market week ahead story.

Asset Moves:Weekly
MSCI EM stocks index+2.6%
MSCI EM FX index+0.4%
Bloomberg Barclays Global EM Local Currency bond index -0.01%

Listen to the emerging-market weekly podcast, here.

Highlights:

  • China and the U.S. both claimed progress in talks to end their trade war, with President Xi Jinping pushing for a rapid conclusion and President Donald Trump talking up prospects for a “monumental” agreement that may still be some weeks away
    • The trade deal being crafted would give Beijing until 2025 to meet commitments on commodity purchases and allow U.S. companies to wholly own enterprises in the Asian nation, according to three people familiar with the talks
    • U.S. payrolls rose 196,000 in March, topping the 177,000 forecast in a Bloomberg’s survey and alleviating some concern about an economic downturn
  • Norway’s $1 trillion sovereign wealth fund got the go-ahead to cut government and corporate bonds from emerging markets in an overhaul of its $310 billion fixed-income holdings
    • Investors said the news isn’t as bad as it first appears as the change wasn’t triggered by pessimism over the outlook for developing nations, but was instead a technical decision
  • The first official glimpse of Saudi Aramco’s financial performance confirms the state-run oil giant can generate profit like no other company on Earth
    • Aramco obtained the fifth-highest investment grade rating at both Moody’s Investors Service and Fitch Ratings as the world’s largest oil producer prepares for its debut dollar bond offering
  • The Turkish lira was among the worst performers; U.S. Vice President Mike Pence warned Turkey that its “reckless” move to purchase a Russian missile-defense system risked diminishing the nation’s role within NATO
    • Turkish election officials ordered a recount of hundreds of thousands of invalid votes cast in several parts of Istanbul, as the ruling party of President Recep Tayyip Erdogan contests its apparent defeat in the city where his political career began
  • India’s central bank delivered a back-to-back interest rate cut and fueled speculation of more policy easing after lowering inflation and economic growth forecasts
  • Poland’s ruling party is returning to the controversial topic of World War II reparations from Germany ahead of May’s elections to the European Parliament, calling on its western neighbor to take “responsibility” for the economic costs of its invasion eight decades ago
  • Moody’s Investors Service chose not to update its investment grade rating on South Africa’s sovereign debt or the outlook. Benchmark bond yields dropped to 10 month lows on the news; the rand was among the best performers for the week
  • Trump retreated from threats to immediately close the border with Mexico over migration, instead abruptly pivoting to a new demand: that the Mexican government stop the flow of illegal drugs into the U.S. within a year or face car tariffs
    • After Democrats in the U.S. threatened to hold up a renegotiated Nafta, Mexico’s ruling party beefed up a labor bill to meet requirements laid out in the trade deal and plans to vote it through this month
  • Brazil’s Economy Minister Paulo Guedes sparred with lawmakers over a proposed pension reform during a crucial period for the government as it works to build congressional support for the bill

Asia:

  • Sentiment at Asia’s factories stabilized in March as a rebound in China buoys the region; China’s private PMI gauge published by Caixin Media and IHS Markit rose to 50.8 from 49.9 in February
    • China said it will extend a suspension of retaliatory tariffs on U.S. autos and include the opioid fentanyl in a list of controlled substances
    • There is room for People’s Bank of China to cut bank reserve ratios, but it should not make a decision until after the releases of first-quarter economic results, Economic Information Daily cites PBOC adviser Sheng Songcheng as saying
    • The inclusion of Chinese bonds into the Bloomberg Barclays Global Aggregate Index will lead to more than $100 billion of foreign inflows, putting the nation’s $13 trillion debt market on track to overtake Japan’s as the world’s second largest, analysts say
    • China’s foreign-currency holdings rose for a fifth month as lower government bond yields in developed markets lifted valuations
  • South Korean President Moon Jae-in urged Kim Jong Un to heed calls to return to the negotiating table after talks broke down between the North Korean leader and President Trump
    • South Korea’s exports fell for a fourth month in March, while inflation slowed to the least since July 2016, raising the view that the central bank may cut rates this year
  • India’s top court quashed the central bank’s directive that tightened guidelines on how banks deal with loan defaults
    • The country’s long-term foreign currency debt rating was affirmed by Fitch at BBB-, the lowest investment grade score
  • The baht was among the worst performers; Bank of Thailand Governor Veerathai Santiprabhob said interest rates have been “low for too long
    • Factors such as the local political situation will likely lead to a continuation of the volatility in the baht, BOT Assistant Governor Alisara Mahasandana said
    • Inflation rate rose to 1.2 percent in March, climbing back into the target range of 1 percent to 4 percent for the first time in five months
    • King Maha Vajiralongkorn revoked royal decorations given to former Prime Minister Thaksin Shinawatra because he fled Thailand after being sentenced to prison, which is “an extremely inappropriate behavior
    • Army chief slammed Thaksin in a rare briefing
  • Philippine inflation eased to 3.3 percent in March from a year earlier, the slowest pace in 15 months
    • The central bank will consider easing monetary policy only when inflation nears 3 percent, Deputy Governor Diwa Guinigundo said hours before CPI data
    • World Bank has revised its 2019 growth forecast for the Philippines to 6.4 percent from 6.5 percent and 2020 estimate to 6.5 percent from 6.6 percent
  • Bank Indonesia is keeping interest rates unchanged for the moment given global uncertainties, and will turn to macroprudential policies to support economic growth, Governor Perry Warjiyo said
    • Former central bank chief Burhanuddin Abdullah, who headed the bank between 2003 and 2008, said it’s time for policy makers to consider cutting rates
  • Malaysia’s former premier Najib Razak appeared in court to face seven of 42 corruption and money-laundering charges linked to his role in 1MDB
    • Exports recorded the steepest drop in more than two years in February
  • Vietnam’s sovereign credit rating was raised by S&P Global Ratings to ‘BB’ from ‘BB-’ on continued improvements in the government’s institutional settings, which help to support consistently strong economic growth
  • Pakistan has summoned India’s Deputy High Commissioner in reference to Pakistan’s foreign minister briefing earlier, warning against any “misadventure,” Ministry of Foreign Affairs Spokesman Mohammad Faisal said in tweet

EMEA:

  • Russian market reaction was muted after a bipartisan group of U.S. senators reintroduced so-called Deter Act sanctions aimed at Russia
    • Russia’s central bank kept dollar holdings steady in its massive reserves in the third quarter following a $101 billion dump of the global reserve currency in the previous three months
    • The ruble has gained more than any currency in the world this year, and unrivaled carry returns fueled further inflows into ruble assets, making hedge funds the most bullish ever. But the best may be over if implied yields are any indication
  • A TV comedian with no political experience won the most ballots in the first round of voting in Ukraine’s presidential election
  • Abu Dhabi is considering combining Abu Dhabi Islamic Bank PJSC with First Abu Dhabi Bank PJSC to create the Gulf region’s largest lender, according to people with knowledge of the matter
  • Abdelaziz Bouteflika, who led Algeria out of civil war to become its longest-serving president, has resigned after throngs of protesters and even his military allies told the ailing president he’d overstayed his welcome
  • South Africa’s gauge measuring sentiment in South Africa’s manufacturing industry fell for third straight month in March as the nation suffered the deepest power cuts in more than a decade
  • For the 16th time since the 1960s, Ghana is wrapping up a financial bailout from the International Monetary Fund and stepping away from the lender’s oversight. Now, it’s up to one of Africa’s perennial overspenders to show that it can stick to a budget
    • Ghana’s central bank maintained its benchmark interest rate at a six-year low of 16 percent, citing some upside risks to the inflation outlook
  • Poland kept borrowing costs unchanged as the central bank tries to iron out differences over whether an $11 billion government fiscal stimulus plan will stoke inflation
    • Poland’s central bank Governor Adam Glapinski dismissed projections by investment banks and a growing minority on the Monetary Policy Council that $11 billion of additional expenditure will stoke inflation and excessively widen the budget deficit. While conceding that there’ll be a small uptick in price growth, he reiterated that borrowing costs may stay unchanged until as far out as 2022
  • Romania is set to resume strict control of money-market liquidity to fight surging consumer prices after the central bank opted to leave its key interest rates unchanged for a seventh meeting

Latin America:

  • Brazil’s real was among the top performers as the government moved ahead with the pension bill, confirming the vote in the first congressional commission will happen on April 17
    • President Jair Bolsonaro met party leaders as he tries to bolster support for pension reform and improve dialogue after Guedes’s conflict-filled hearing at the first committee analyzing the bill
    • Industrial production rose less than expected in February, underscoring the sector’s difficulty in gaining traction as the new government gets off to a rocky start
    • Brazil’s state-run oil producer Petroleo Brasileiro SA agreed to sell TAG, its domestic natural gas pipeline unit, to France’s Engie SA and Canadian pension fund Caisse de Depot et Placement du Quebec for about $9 billion, according to a person familiar with the matter
  • Argentina’s central bank said it won’t allow its key interest rate to drop below 62.5 percent in April, buttressing its campaign to protect the peso
    • Country’s economic outlook deteriorated across the board in March, according to the central bank’s monthly survey of economists
    • Industrial production tumbled 8.5 percent in March, slightly better than expected, but unlikely to alter a negative outlook for nation’s economy
    • Economy Minister said the government isn’t currently discussing changes to the currency non-intervention zone
    • The IMF’s executive board approved a $10.8 billion disbursement to Argentina on Friday as part of its record credit line to the country
  • Mexico’s Finance Ministry expects the nation’s economy to grow 1.1 percent to 2.1 percent this year, down from a previous estimate of 1.5 percent to 2.5 percent, and 1.4 percent to 2.4 percent in 2020
    • The opposition accused the government of undermining the legislative branch after President Lopez Obrador appointed four commissioners at the energy regulator CRE, even though they were rejected twice by the senate
    • Long Mexican peso positions reached a six-year high in the week ended March 26, CFTC data showed
  • Colombia’s peso was among the best performers; the nation is seen as willing and able to reduce the fiscal deficit by S&P Global Ratings, which expects the government to find a way to boost revenue
    • Central bank board members expressed concern about the pace of economic recovery, according to the minutes of the March 22 meeting
  • Chile’s economic activity contracted for the second time in three months in February from the month before as mining production tumbled
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