EM Review: Epic Oil Slump Choked Off Rally in Emerging Assets

(Bloomberg) -- Emerging-market stocks pared a two-week advance last week and currencies weakened as oil plunged and briefly dropped below zero for the first time, upending a fragile rebound in the appetite for risk. Latin American currencies were the worst performers as a political crisis rocked Brazil’s markets.

The following is a roundup of emerging-market news and highlights for the week through April 26:

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Highlights:

• Despite an OPEC+ deal to cut 10% of global production, the oil market’s crisis worsened. West Texas Intermediate futures slumped to minus $37.63 at one point as traders were willing to pay to get crude off their hands
• China’s central bank rolled over some of the targeted funds due Friday while cutting interest rates on the loans, the latest in a string of measures aimed at ensuring sufficient liquidity
• The Chinese ambassador to the U.S. called for a “serious rethinking” of relations between the world’s biggest economies in the face of the coronavirus pandemic
• Saudi Arabia will rely on the biggest debt program since its debut in international bond markets in 2016 to absorb the shock to the budget from collapsing energy prices and cuts in oil output. It could borrow 220 billion riyals ($58 billion) locally and abroad this year
• President Donald Trump signed a $484 billion spending package that includes more money for small businesses
  • Trump also signed an executive order temporarily curbing the issuing of new green cards for would-be U.S. permanent residents in what he described as a bid to limit competition for jobs
• Brazil’s President Jair Bolsonaro was accused of “political interference” by Sergio Moro, a key aide who resigned as justice minister Friday, causing a slump in local markets
• Mexico sold $6 billion of Eurobonds that were heavily oversubscribed, following a wave of rating downgrades
  • Mexico’s central bank delivered a second emergency rate cut and promised measures to boost liquidity amid a looming recession caused by the coronavirus outbreak and a plunge in oil prices
• Turkey lowered rates more than expected, forcing state banks to defend the lira to keep it from breaching a key threshold
• Russia cut interest rates by 50 basis points and signaled another percentage point easing is possible
• Ukraine brought what was Europe’s highest benchmark rate below 10% for the first time in six years, buttressing government efforts to offset the impact of the coronavirus
• Argentina officially started a $65 billion debt restructuring, offering to exchange bonds for ones with longer maturities. Some of its largest creditors rebuffed the proposal
• Developing countries need about $1 trillion in debt canceled to free up funds to fight the coronavirus and avert a massive debt crisis, the United Nations said
• Lebanon’s prime minister launched a scathing attack on central bank Governor Riad Salameh over the sharp depreciation of the pound on the unofficial market amid the country’s worst ever financial crisis
• Fitch Ratings downgraded Hong Kong as an issuer of long-term, foreign currency debt saying the city is facing a second major shock from the coronavirus after prolonged social unrest last year
• Speculation about Kim Jong Un’s health intensified over the weekend after tantalizing -- yet unverified -- reports about a visit by a Chinese medical team and movements of the North Korean leader’s armored train

Asia:

• China’s nascent rebound from the historic contraction in the first quarter is already losing pace in April, amid signs of a global recession and still weak domestic demand

  • China is considering holding its highest-profile annual political meeting in late May, according to people familiar, after it was postponed for the first time in decades amid the coronavirus pandemic
  • Hong Kong Monetary Authority intervened for a third day to defend its currency peg as the local dollar touched the strong end of its trading band
  • Bad debt at Chinese banks climbed in the first quarter even as lenders deferred payments on and rolled over a combined 1.5 trillion yuan ($212 billion) in loans after the coronavirus outbreak brought the economy to a standstill
  • Anyone in Shanghai who wants to be tested for the coronavirus can now do so, in China’s latest step to allay fears so that economic activity can resume

• South Korea’s economy suffered the worst contraction since the global financial crisis in the first quarter, with a darkening outlook for global trade suggesting it may fail to grow this year

  • South Korean exports for the first 20 days of April slid 27% from a year earlier, underscoring the hit to global trade caused by lockdowns to combat the virus pandemic
  • South Korean President Moon Jae-in said he’s ordering up a third extra budget to shield the economy from the coronavirus and called for a “Korean-style New Deal” to create jobs and boost growth once the virus is brought under control

• Reserve Bank of India said it would redeploy a debt operation akin to the Fed’s Operation Twist, sending the yield on the benchmark sovereign bond plunging

  • India’s central bank may be reducing its intervention in the currency markets as volumes improve and volatility eases
  • The Reserve Bank of India reported 164.24 billion rupees ($2.2 billion) of debt purchases in the secondary market in the five days ended April 17, stepping up buying for a second week in an attempt to cool yields
  • Indian companies have sold a record amount of shorter-tenor bonds this month as the RBI floods markets with cheap cash
  • Franklin Templeton will wind up $4.1 billion of Indian debt funds after a liquidity crisis compelled the firm to freeze investor withdrawals, underscoring persistent stress in credit markets as the coronavirus pandemic wreaks havoc on the global economy

• Indonesia is running out of time to contain the coronavirus pandemic and the government should immediately ramp up stimulus by tens of billions of dollars to lessen the economic shock, according to a business lobby group

  • Indonesia banned an annual ritual of citizens traveling in large numbers to their hometowns and villages ahead of the Muslim festival of Eid al-Fitr to prevent the spread of coronavirus
  • Bank Indonesia has made its first direct purchase of government bonds, turning to unconventional tools to curb the economic impact of the coronavirus
  • Palm oil producers in Indonesia may require more storage tanks for their bulging inventories as the coronavirus disrupts trade in the cooking oil
  • Indonesia extended stringent social distancing rules in Jakarta as the capital region continued to remain the epicenter of infections in the Southeast Asian nation
  • Asian Development Bank approves $1.5 billion financing to help the Indonesian government’s efforts to fight the pandemic
• Malaysia’s push to explore energy blocks off its coast has turned into a five-nation face off involving U.S. and Chinese warships, raising the risk of a direct confrontation
  • Malaysia’s state oil company is considering raising this year’s dividend to as much as 10 billion ringgit ($2.3 billion) to help the government fund its nearly $60 billion stimulus package, according to people familiar
  • Malaysia has decided to extend its lockdown by another two weeks while easing restrictions to allow limited travel
  • Malaysia estimates 2.4 billion ringgit ($551 million) of losses each day from businesses remaining shut due to movement restrictions imposed to contain the coronavirus pandemic
• Thailand’s exports posted an unexpected jump in March, helped by currency weakness and increased demand for products such as processed and canned food amid lockdowns in many nations
  • The Thai government asked the Bank of Thailand to ensure the baht can support export competitiveness against other trade partners such as Vietnam, Deputy Prime Minister Somkid Jatusripitak said
  • Thailand’s foreign-tourism receipts plunged in March to the lowest level since at least 2012, as the coronavirus caused visitor numbers to crash
• The Philippines’ spending leeway to fight the coronavirus has narrowed as its key economic engine remains on lockdown, officials said. “The money is dwindling,” President Rodrigo Duterte said in a recorded briefing Friday
  • The Philippine government has negotiated almost $7 billion in concessional foreign loans and isn’t in a rush to sell overseas bonds, central bank Governor Benjamin Diokno said
  • The Philippines is extending until May 15 the lockdown of its capital region and nearby areas that account for majority of its economic output as it tries to stem the coronavirus outbreak
  • The Philippines filed a diplomatic protest against China’s creation of two new districts to administer islands in the disputed South China Sea, an envoy said
  • The Philippine government has repatriated more than 17,000 Filipinos who lost their jobs because of lockdowns abroad
• Taiwan’s central bank will lower the rate for lending to commercial banks to 0.1% from 0.25% for a special loan project to support small and medium-sized companies
• Asia’s dollar bond market is seeing the most activity since early March, with a handful of issuers lining up deals
• Sri Lanka’s long-term foreign currency debt rating was downgraded by Fitch to B- from B, with the coronavirus pandemic seen exacerbating the nation’s already-rising public and external debt sustainability challenges

EMEA:

• South Africa’s government unveiled a 500 billion rand ($26 billion) package to shore up an economy devastated by the fallout from the coronavirus

  • The government said it could pay for the economic rescue package using existing budgets and financing from multilateral institutions, and won’t necessarily have to tap private lenders, a government adviser said
  • South Africa’s government will begin easing a nationwide lockdown that’s devastated the economy, while retaining a raft of restrictions to curb the spread of the coronavirus
  • South African inflation slowed in March, falling back below the midpoint of the central bank’s target range and leaving room for further easing
• Nigeria’s inflation rate accelerated to an almost two-year high of 12.3% in March as a prolonged border closing and a weakening of the currency on the back of falling crude prices drove up food prices
• The fallout from the coronavirus has upended Zimbabwe’s plans to enforce the use of its own currency and left it scrambling to find money to tackle twin crises of economic collapse and famine
• Saudi Arabia joined nations around the world in gradually loosening restrictions that were put in place to prevent the spread of the coronavirus
• Oman and Bahrain are stuck on the sidelines of the international debt markets after a record borrowing tally by Gulf Arab economies this month underscored a divide between the region’s strongest and weakest sovereigns
  • Bahrain became the latest nation in the oil-rich Gulf to announce drastic spending cuts in an effort to stretch the budget at a time the crash in oil prices and measures to combat the global pandemic decimate revenue
  • Oman’s government is devising new policies to ensure financial stability since spending cuts taken so far to offset the impact of the coronavirus will only bring temporary relief, a Finance Ministry official said
  • Analysts said Gulf currency pegs mostly looked solid even with energy prices crashing, though Oman’s could be vulnerable
• Dubai is joining cities around the world in gradually loosening curbs after it enforced one of the strictest lockdowns to contain the spread of coronavirus
• Lebanon began allowing holders of U.S. dollar bank accounts to withdraw deposits in local currency at a rate set daily by lenders, the latest indication authorities are abandoning a decades-old exchange peg
  • Investors holding debt protection on Lebanon are in line to share compensation of $215 million after the government defaulted for the first time in its history
• Emirates NBD PJSC set aside a record amount of provisions to cover bad loans, giving investors a glimpse of the damage the coronavirus and lower oil prices are wreaking on lenders in the Gulf
• Turkey allocated about 107 billion liras ($15 billion) to businesses, mostly to small- and medium-sized enterprises, as part of efforts to prop up the economy, Finance Minister Berat Albayrak said

• Poland is selling an unprecedented amount of bonds in undisclosed, out-of-the-market deals as part of its fight against the fallout of the coronavirus, undermining faith in eastern Europe’s biggest government-debt market

  • Polish banks need to change their business model to stay afloat in an environment of record-low domestic interest rates and rising loan risks, according to the country’s largest lender
  • Polish retail sales plummeted by the most since April 2005, according to the statistics office
• Hungary announced a return to international debt markets to fund an economic stimulus plan during the coronavirus pandemic
• The Czech government moved close to covering this year’s record funding needs after the latest in a string of bond auctions, as bets for further rate cuts drove cash from central bank deposits into the debt market
• Romania’s credit outlook was lowered to negative from stable by Moody’s Investors Service

Latin America:

• Brazil’s 10-year economic recovery plan in the aftermath of the coronavirus pandemic is said to have opened a rift between President Jair Bolsonaro and Economy Minister Paulo Guedes after Chief of Staff Walter Braga Netto was named to lead the program
  • Bolsonaro escalated his campaign for the reopening of the economy after he attended a protest against restrictive measures imposed by state governors
  • Central bank President Roberto Campos Neto said the country’s key interest rate is still far from a level where it can no longer stimulate the economy, fueling bets on further easing
  • Brazil’s public health system is nearing capacity as the coronavirus spreads to poorer states
• Mexico is on track to cash in on a $6 billion windfall once its massive insurance program against low oil prices kicks in following a plunge in prices, President Andres Manuel Lopez Obrador said
  • Severe acute respiratory infections in Mexico spiked 50% this season compared with a year ago, almost certainly all due to coronavirus, indicating that government figures for the pandemic are far too low
• Argentina said it wouldn’t make $500 million in interest payments due last week, instead entering a 30-day grace period
  • Argentina had expected bondholders to reject the debt proposal it offered, but the country cannot pay more, Economy Minister Martin Guzman said
  • Province of Buenos Aires will ask creditors for a three-year moratorium on its debt payments, a 55% reduction in interest payments and a 7% cut in capital payments, according to an official from the provincial government
  • Argentina is extending its nationwide lockdown by another two weeks until May 10 to contain the coronavirus outbreak while it seeks to ease some restrictions in smaller cities
  • Argentina’s decision to pull out of regional trade negotiations will exacerbate the country’s economic crisis, a coalition of opposition lawmakers said
• Colombia’s state oil firm became the first Latin American non-financial company to test international debt markets in nearly two months, selling $2 billion in bonds as it adjusts to a crude price swoon that has battered the energy industry
• Peru’s government expanded a cash handout program to cover three quarters of all homes after extending containment measures

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With assistance from Bloomberg