Emerging-Market Stocks Join Fed-Fueled Global Selloff

(Bloomberg) -- Stocks in developing nations joined an equity selloff that drove the Nasdaq indexes into a bear market amid concern over the outlook for the global economy in 2019.

Highlights for the week ended Dec. 23:

• A dispute over President Donald Trump’s demand for border-wall funding led to the shutdown of the U.S. government, affecting nine of 15 federal departments, dozens of agencies and hundreds of thousands of workers
• Trump has discussed firing Federal Reserve Chairman Jerome Powell, according to four people familiar with the matter. Treasury Secretary Steven Mnuchin moved to reassure financial markets by saying Trump didn’t believe he had the authority to remove the central bank chief
• The Federal Reserve hiked borrowing costs for the fourth time this year, raising the federal funds rate target to a range of 2.25 percent to 2.5 percent. Powell suggested he will be more cautious about raising rates next year, while policy makers cut forecasts for interest-rate hikes in 2019 to two from three
  • Concerns about the global economy sent oil prices lower, helping boost currencies of oil-importing emerging economies including the Indian rupee
• The U.S. and China are planning to hold meetings in January to negotiate a broader truce in their trade war but are unlikely to have any face-to-face contact before then, according to Treasury Secretary Steven Mnuchin
• The U.S. Justice Department announced indictments accusing Chinese officials of coordinating a decade-long espionage campaign to steal intellectual property and other data from dozens of companies
• Saudi Arabia’s government said it expects to earn more from oil next year, defying most price forecasts for crude and contrasting with the kingdom’s history of making conservative financial assumptions
• The U.S. Treasury Department intends to remove financial restrictions on Russian billionaire Oleg Deripaska’s aluminum companies -- United Co. Rusal, En+ Group Plc and EuroSibEnergo JSC -- even as Deripaska will remain under U.S. sanctions; Rusal shares jumped
• Turkey’s lira rose and bonds yields fell after Trump ordered the withdrawal of U.S. troops from Syria, removing a potential source of conflict between the U.S. and Turkey
• The Mexican peso climbed as a majority of bondholders accepted the government’s offer to buy back $1.8 billion in debt used to fund the construction of an international airport that President Andres Manuel Lopez Obrador has said he’ll cancel; that allows the government to avoid a mandatory repayment of $6 billion that would have been triggered by the cancellation of the airport

Asia:

• The Shanghai Composite Index fell for a second week even as the People’s Bank of China said it would supply lower-cost liquidity for as long as three years to banks willing to lend more to smaller companies. Policy makers are rolling out targeted measures aimed at shoring up the flagging economy
  • President Xi Jinping disappointed investors by not announcing any new policy initiatives in a speech Tuesday morning to mark the 40th anniversary of Deng Xiaoping’s opening up of the Chinese economy
  • The nation’s holdings of U.S. Treasuries fell to the lowest in a year-and-a-half, dropping for a fifth straight month to $1.14 trillion in October, from $1.15 trillion in September
  • China’s top policy makers confirmed more stimulus will be rolled out in 2019
• North Korea told the U.S. that sanctions and pressure won’t work to force the country into action on its nuclear program
• South Korea’s government sees its economy expanding between 2.6 percent and 2.7 percent both this year and in 2019, compared with previous predictions of 2.9 percent for 2018 and 2.8 percent for next year
  • Finance Minister Hong Nam-ki and Bank of Korea Governor Lee Ju-yeol said economic conditions next year will "not be good" as external uncertainties remain high and investment and employment are sluggish
  • While capital outflows are currently unlikely, it’s necessary to focus on resolving financial imbalances, a member of the Bank of Korea’s policy board said, according to minutes from the Nov. 30 meeting
• Bank of Thailand raised its policy rate for the first time since 2011, boosting it by 25 basis points to 1.75 percent. It cut its 2018 GDP forecast to 4.2 percent, compared with a 4.4 percent estimate in September
  • Exports unexpectedly declined 1 percent in November on year, while imports climbed 14.7 percent, leaving the trade deficit at $1.2 billion
• The rupiah had its first weekly rally in three. Bank Indonesia held its policy rate unchanged at 6 percent, as expected
  • The central bank is intervening directly in the onshore non-deliverable forward market through eight brokers, according to Nanang Hendarsah, executive director for monetary management
• The Philippine peso was little changed as the central bank forecast the current-account deficit will widen to the most since 2001 next year
  • The government is now looking at a possible sale of dollar bonds in January after being unable to complete it this quarter, Treasurer Rosalia de Leon said
• Singapore has expanded a criminal probe into fund flows linked to scandal-plagued 1MDB to include Goldman Sachs Group Inc., which helped raise money for the entity, people with knowledge of the matter said. The widened probe comes less than a week after Malaysia filed the first criminal charges against the firm over a relationship that spawned one of the biggest scandals in its history
• Taiwan’s central bank kept its benchmark interest rate unchanged at 1.375 percent, as expected

EMEA:

• Romanian markets were hit by surprise government measures to curb the budget deficit by raising $2.5 billion of extra revenue, including a levy on the foreign-dominated banking industry
• Saudi Arabia intends to issue around 120 billion riyals ($32 billion) of bonds next year to help finance its deficit, with plans to tap international markets in the first half, said Finance Minister Mohammed Al-Jadaan
  • Major banks in Saudi Arabia reached settlements worth a combined 16.7 billion riyals ($4.5 billion) with the kingdom’s tax authority over a religious levy the lenders had been kicking against
• The International Monetary Fund approved a $2.97 billion precautionary liquidity line arrangement for Morocco to support the country’s policies to reduce fiscal and external vulnerabilities
• Hungary’s forint was among the best performers. The central bank left its main interest rates unchanged, while removing a reference to loose policy. The nation posted the narrowest current-account surplus since 2014
• Czech central bankers tapped the brakes on their unprecedented spate of interest-rate increases as end-of-year market volatility obscures the outlook for the koruna. They kept the main rate unchanged at 1.75 percent
• Nigeria’s jobless rate rose to the highest since at least 2010 in the third quarter. The unemployment rate was 23.1 percent in the third quarter, compared with 22.7 percent in the previous three months
• Oman’s long-term issuer default rating was downgraded by Fitch Ratings to BB+, one level below investment grade, from BBB-; the cut was widely expected and “hence a knee-jerk negative reaction” in bond prices may be on the cards, eventually leading to a 20-25bp widening in the curve, Morgan Stanley analyst Jaiparan Khurana said

Latin America:

• Mexico’s central bank raised its policy rate by 25 basis points to 8.25 percent, as predicted
• Brazilian inflation will remain below or at target in 2019 and 2020 even if the benchmark Selic rate stays at the current all-time low of 6.5 percent, the central bank said in a quarterly report
  • Chief Justice Dias Toffoli struck down a ruling that would have freed prisoners jailed before the end of their appeals process, including former president Luiz Inacio Lula da Silva
  • Brazil’s bigger-than-expected deflation in the month through mid-December supported the case for stable interest rates throughout next year
• Argentina fell into recession after growth contracted in the third quarter amid a currency crisis, signaling more pain ahead for South America’s second-largest economy
  • The unemployment rate declined to 9 percent in the third quarter, compared with the median estimate in a Bloomberg survey of 9.8 percent
• Chile could raise interest rates by as much as 50 basis points from 2.75 percent at the central bank’s next meeting if the data is favorable, a policy maker said
  • A 25 basis-point hike in January is practically a done deal, but the pace of hikes after that remains in question, Fynsa chief economist Nathan Pincheira said in a note citing minutes of the authority’s last meeting
• Colombia’s peso was among the worst performers as the central bank held its key rate at 4.25 percent. The Lower House and Senate approved a financing bill needed to fill the 2019 budget gap
  • Consumer confidence fell the most in nearly two years in November. The drop, which was much steeper than analysts had forecast, raises questions over the recovery in private consumption, according to BTG Pactual’s Colombia unit

--With assistance from Philip Sanders.

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, ;Rita Nazareth at rnazareth@bloomberg.net, ;Dana El Baltaji at delbaltaji@bloomberg.net, Andrew Janes

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