Emerging-Market Gains Leave Argentina, Turkey Behind: EM Review

(Bloomberg) -- After erasing this year’s advance, emerging-market currencies ended the week in the green as U.S. inflation data reduced pressure on the Federal Reserve to step up monetary tightening. The rout hasn’t eased for the Argentine peso and the Turkish lira, which tumbled as authorities struggle to stem losses.

The MSCI Emerging Markets Index of shares advanced 2.5 percent, the biggest weekly gain since mid-February. A measure tracking developing-nation currencies gained 0.3 percent, snapping five weeks of losses. The Bloomberg Barclays index for EM local currency government bonds posted a fifth weekly loss with 0.3 percent decline.

Highlights for the week ended May 11:

• President Donald Trump announced the U.S. withdrawal from Iran nuclear deal; he warned Iran of “very severe” consequences should the country restart nuclear activities
  • Russian President Vladimir Putin cautioned against threats from “aggressive nationalism” and “claims to exceptionalism” a day after Trump said the U.S. will quit the Iran nuclear deal
  • South Korea said it will seek exemption from U.S. sanctions on Iran oil
• Trump said he will meet North Korean leader Kim Jong Un on June 12 in Singapore
  • The president and his Chinese counterpart Xi discussed trade and North Korea
• U.S. consumer-price index rose by a weaker-than-anticipated 0.1 percent from March and 2.1 percent on an annual basis
• Argentina peso was the worst performer even as the nation’s Treasury Minister Nicolas Dujovne meets with the International Monetary Fund to discuss terms for a credit line that can help stabilize the country’s finances after a currency selloff
• Turkish lira’s rebound from a record low fizzled out after President Recep Tayyip Erdogan repeated his opposition to higher interest rates. His remarks Friday sent the currency to a loss of nearly 6 percent so far this month
• Mahathir Mohamad won a stunning victory in Malaysia’s election, ending the rule of Najib Razak in a landmark shift for the Southeast Asian nation; Mahathir says he will focus on addressing concerns over the economy and state finances
• China urged the U.S. to withdraw its trade threats and confirmed that negotiators continue to talk before Xi’s top economic adviser returns to Washington
• The U.S. and China remain far apart on trade following high-level meetings between officials of both countries, U.S. Commerce Secretary Wilbur Ross said

Asia:

• Philippine peso lagged all Asian peers even as the central bank raises policy rate for the first time since 2014, lifting it by 25 basis points to 3.25 percent, and said it’s not behind the curve
  • Exports dropped 8.2 percent on year in March, the biggest decline since 2016, while imports gained 0.1 percent, leaving trade deficit of $2.6 billion
• The Chinese yuan climbed, ending a 3-week slump; China’s consumer prices rose 1.8 percent on year in April, the least since January; exports jumped 12.9 percent in April from a year earlier in dollar terms, compared with 2.7 percent decline in March
  • People’s Bank of China Governor Yi Gang said policy makers haven’t intervened in the foreign exchange market for almost a year, Caixin reported
  • China isn’t backing down after the White House called an order for airlines to stop referring to Taiwan, Hong Kong and Macau as countries “Orwellian nonsense”
• Malaysia’s financial markets were closed since May 9 election; Prime Minister Mahathir said that king is willing to pardon jailed politician Anwar Ibrahim immediately
  • The central bank held its benchmark interest rate at 3.25 percent as expected
• Indonesia’s rupiah fell after data showed the economy expanded at a slower pace last quarter than economists had forecast, a setback for the government after eight interest rate cuts in the past two years

EMEA:

• Investor expectations for strong central-bank action against the slide in the lira were belied as Erdogan said he will emerge victorious in his fight against interest rates after elections next month. Earlier speculation the central bank will raise policy rates had helped the lira erase much of its losses
  • Erdogan also said lira’s weakness has no fundamental or technical basis
• Russian ruble was among the best-performing emerging-market currencies; a summit between Trump and Putin is “extremely important” to safeguard global stability in the wake of the American president’s decision to quit the Iran nuclear agreement, according to a top Russian diplomat in charge of relations with the U.S.
  • Russia is willing to consider a French proposal to negotiate an additional agreement on Iran’s nuclear program to address Trump’s concerns over the current international accord, a top diplomat said
• South African rand led gains among all emerging-market peers; the nation’s business confidence declined to levels last seen when Jacob Zuma was still the president, as euphoria over the Cyril Ramaphosa’s ascent to power recedes
  • Supra Mahumapelo, the embattled premier of South Africa’s North West province, will temporarily vacate his post following a spate of violent protests against his leadership
• Polish zloty fell against the dollar for the 4th straight week; policy maker Lukasz Hardt said in an interview that the current euro-zloty exchange rate is “very OK” and that a rate increase in 2019 “is definitely not off the table,”
• Hungarian forint also slumped versus the dollar; the country’s inflation rate rose to 2.3 percent on year in April from 2 percent in March

Latin America:

• The Mexican peso declined for a fourth week; presidential front-runner Andres Manuel Lopez Obrador’s lead over runner-up Ricardo Anaya narrowed in two voter opinion polls
  • Consumer prices fell more than expected in April as rates for electricity dropped on the start of summer subsidies
  • U.S. House Speaker Paul Ryan says Congress must get Nafta deal by May 17 for 2018 vote
• Brazilian real slid as central bank President Ilan Goldfajn’s remarks bolstered bets on further policy easing
  • Ex-President Luiz Inacio Lula da Silva doesn’t have conditions to run for the nation’s top job this year as an appeals court upheld his conviction for corruption and money laundering: Supreme Court Judge Gilmar Mendes
  • Former Supreme Court Chief Justice Joaquim Barbosa said he will not run for the country’s top job -- pulling one of the highest-profile hopefuls from this October’s race
• Colombia’s peso retreated; future inflation “is subject to a high degree of uncertainty, since it depends on factors which are very volatile such as staple products and capital flows,” according to minutes of April policy meeting
• Chile’s peso halted a 3-week decline; the country’s inflation rate unexpectedly rose in April, while remaining below the target range, as the first signs of price pressures begin to emerge

Upcoming data, events:

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net, George Lei in New York at glei3@bloomberg.net, Srinivasan Sivabalan in London at ssivabalan@bloomberg.net.

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Rita Nazareth at rnazareth@bloomberg.net.

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