Brazil’s Real Leads Gains, While Lira, Sol Decline: EM Review

The Brazilian real led gains among developing-nation peers this week as foreigners finally bought into the growth story, with analysts improving their estimates for expansion this year, after a better-than-expected first quarter driven by investment and booming agriculture. The Turkish lira and the Peruvian sol weakened as traders weighed new calls for lower interest rates and a presidential election Sunday, respectively.

Highlights:

  • A list of Chinese companies subject to U.S. investment bans was altered by American President Joe Biden, who signed an order affecting 59 firms with ties to the military or in the surveillance industry, including Huawei Technologies Co. and the country’s three biggest telecommunications companies
  • U.S. jobs growth picked up in May -- along with worker pay -- and the unemployment rate fell, signaling firms are making some progress filling a record number of openings as the economy powers up
  • Turkish President Recep Tayyip Erdogan renewed calls for lower interest rates despite elevated inflation, sending the lira to a fresh low against the dollar and prompting the central bank governor to push back against expectations of an imminent move
  • China forced banks to hold more foreign currencies in reserve for the first time in more than a decade, its most substantial move yet to rein in the surging yuan. Financial institutions will need to hold 7% of their foreign exchange in reserve from June 15, an increase of 2 percentage points, and the first such hike since 2007
Asset moves as of 4:20 p.m. in

New York

Weekly
MSCI EM stocks index+1.67%
MSCI EM FX index+0.22%

Bloomberg Barclays global EM local-currency bond index

(Up to Thursday)

-0.7%

Asia:

  • China’s Department of Price is now playing an increasingly important role in the inflation debate that’s whipsawing financial markets around the world. Strategists at Goldman Sachs Group Inc. and Citigroup Inc. have said any attempt to stop the commodities rally will likely fail in the face of supply constraints and buoyant global demand, Chinese authorities show few signs of letting up
  • The Philippines kept its capital under loose movement restrictions where most businesses can operate in a limited capacity, while placing several areas under lockdown to stem rising coronavirus cases outside Manila
  • Reserve Bank of India will buy an additional 1.2 trillion rupees ($16.4 billion) of bonds under the Government Securities Acquisition Program 2.0 to keep government borrowing costs anchored to ensure it can aid an economic recovery
  • Malaysia unveiled a 40 billion ringgit ($9.7 billion) package to help people and companies through the two-week nationwide lockdown that began June 1. Bonds rose as the direct fiscal injection of 5 billion ringgit was lower than expected

EMEA:

  • Bahrain started talks with banks for a potential debt sale in the second half of this year, according to people familiar with the matter
  • Zambia’s local currency and dollar debt rebounded as sustained high copper prices and expectations of a deal with the International Monetary Fund attracted investors, even as the southern African nation shows no near-term prospect of resolving a default on its Eurobonds
  • Russia said it will eliminate the dollar from its oil fund to reduce vulnerability to Western sanctions just two weeks before President Vladimir Putin holds his first summit meeting with U.S. leader Joe Biden

LatAm:

  • Peruvian assets gained Friday, the last trading day before the presidential election, after a new top economic adviser to leftist candidate Pedro Castillo said his boss is nothing like Venezuela’s Hugo Chavez. Castillo, a school teacher and union organizer, faces Keiko Fujimori, a former lawmakers who’s been jailed three times since 2018, and is campaigning while out on bail
  • Midterm elections on June 6 present the biggest challenge yet for Andres Manuel Lopez Obrador’s self-declared “fourth transformation” of Mexican society. The notion that foreign actors are meddling in Mexican politics is one of many that Lopez Obrador wields as evidence of attempts to sabotage his program
  • Yields on Colombia’s peso debt due 2050 fell the most in three weeks after Public Credit Director Cesar Arias said in an interview that the Andean nation will begin to discuss with investors whether to scale back the maturities on some of the bonds it sells at auction

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