Currencies, Stocks Post Late Surge on U.S. Job Report: EM Review

Emerging-market currencies and stocks reversed early losses to end the week higher as they drew support from a weaker dollar and lower U.S. Treasury yields. Both asset classes posted their biggest gains on Friday as a weak U.S. jobs report revived risk appetite under the premise that Federal Reserve officials will keep easy monetary policy for longer.

Highlights:

  • China’s exports rose more than expected in April, suggesting its trade outperformance could last longer than forecast this year, fueled by global fiscal stimulus
  • U.S. job growth significantly undershot forecasts in April, suggesting that difficulty attracting workers is slowing momentum in the labor market and challenging the economic recovery
  • A large option bet on quicker rate-hikes by the Federal Reserve got bigger this week, even as officials pushed back against hawkish expectations
  • A rising appetite for risk across a variety of asset markets is stretching valuations and creating vulnerabilities in the U.S. financial system, the Federal Reserve said in its semi-annual financial stability report
Asset moves as of 4:20 p.m. in

New York

Weekly
MSCI EM stocks index+0.24%
MSCI EM FX index+0.86%

Bloomberg Barclays global EM local-currency bond index

(Up to Thursday)

+0.2%

Asia:

  • The coronavirus wave that plunged India into the world’s biggest health crisis has the potential to worsen in coming weeks, with some research models projecting that the death toll could more than double from current levels
  • Indonesia’s economy contracted more than expected in the first quarter, as one of the fastest vaccine rollouts in Southeast Asia hasn’t been enough to revive domestic demand. Gross domestic product declined 0.74% from a year ago, worse than the median estimate of -0.65% in a Bloomberg survey of economists
  • Thailand’s central bank kept its benchmark interest rate unchanged for an eighth straight meeting, warning that its forecast for an economic recovery has been threatened by the country’s biggest virus wave since the pandemic began. Malaysia also kept its benchmark interest rate at a record low as a fresh surge in coronavirus infections threatens to further delay an economic recovery
  • Asia’s manufacturing activity remained robust through April even as a gauge of factory output in China -- the region’s top economy and industrial powerhouse -- showed signs of cooling

EMEA:

  • Turkey’s central bank kept its benchmark interest rate unchanged for a second meeting on Thursday, pledging to maintain its “current” policy stance until there’s a significant drop in inflation
  • The Czech central bank gave the strongest signal yet that it may start raising interest rates this summer as policy makers see easing economic risks from the coronavirus pandemic
  • Saudi Arabia lowered oil prices for customers in its main market of Asia as a surge in coronavirus cases crimps demand in India, the world’s third-largest crude importer
  • Iran’s rial has strengthened more than 25% since world powers started negotiations to revive the 2015 nuclear accord, a sign that the Islamic Republic’s economy anticipates U.S. sanctions relief

LatAm:

  • President Ivan Duque withdrew a tax bill that’s spurred deadly protests and a selloff in Colombian assets. The finance minister and his deputy quit Monday, and the new minister said the country will fight to keep its investment-grade rating. History shows that leaders’ fear of junk is misguided
  • Central bankers in Mexico and Chile are facing above-target annual inflation and temporary food cost jumps ahead of their monetary policy meetings next week. Chilean lawmakers moved closer to approving a giant tax hike on mining
  • Former IMF official Simon Cueva will become Ecuador’s next finance minister, President-elect Guillermo Lasso said. Cueva is a former head of research at Ecuador’s central bank, and has also been the International Monetary Fund’s representative to Bolivia
  • Lawmakers in El Salvador, where congress is controlled by the president’s party, removed five top judges and the attorney general over the weekend. The nation’s bonds rebounded from a selloff but investors are on edge, concerned that tension between the administration and the U.S. government will dim the prospects for a deal with the International Monetary Fund

©2021 Bloomberg L.P.

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