Moderating U.S. Yields Offset Renewed Virus Spread: EM Review

Emerging-market currencies and stocks posted a weekly gain as easing Treasury yields offset concerns over a renewed surge in virus cases. Better-than-expected economic data from the U.S. and South Korea also boosted sentiment. Bonds headed for a third weekly advance.

The following is a roundup of key emerging-market news for the week through April 23:

Highlights:

  • Treasury yields dropped after U.S. President Joe Biden proposed raising the capital gains tax rate. Benchmark 10-year yields are now more than 20 basis points below their March highs
  • South Korea’s early trade report showed exports surging in April, buoyed by a recovery of global commerce.
  • Applications for U.S. state unemployment insurance unexpectedly fell
  • Russia said it will begin pulling thousands of troops back from areas near the Ukrainian border in a step that could calm strains with the West that have climbed in recent weeks
  • A renewed surge in Covid-19 infections is threatening to further divide the world economy between the rich and poor, potentially damaging overall global growth
  • Mounting pressures have long been a scourge eroding the appeal of developing-market bonds and currencies. Now, data across the world is flashing warning signs again
Asset moves as of 4 p.m. in New YorkWeekly
MSCI EM stocks index+0.4%
MSCI EM FX index+0.4%
Bloomberg Barclays global EM local-currency bond index (Up to Thursday)+0.3%

Asia:

  • China sought to allay fears it wants to topple the dollar as the world’s main reserve currency as Beijing makes bigger strides in creating its own digital yuan
    • Chinese leader Xi Jinping accepted an invitation from President Biden to join a summit on climate change, one area where the two countries are cooperating despite frosty ties on other issues
  • India saw the world’s biggest one-day jump in coronavirus cases ever as a ferocious new wave grips the country, overwhelming hospitals and crematoriums and prompting frantic cries for help on social media
  • Indonesia’s central bank left its benchmark interest rate unchanged and cut its outlook for economic growth, as it seeks to support an uneven recovery as foreign outflows pressure the country’s currency
  • Southeast Asia’s biggest predominantly Muslim nations are tightening movement restrictions to avert a possible surge in Covid-19 infections around the Ramadan holidays.

EMEA:

  • Turkish President Recep Tayyip Erdogan said authorities used $165 billion of central bank foreign-currency reserves to weather developments in 2019 and 2020, and may use them “again when needed.

    • Turkish lira fell as much as 1% to 8.4050 per dollar Friday afternoon in New York, the weakest level since March 30, after a report that President Biden told Erdogan that he will call the Armenian Massacre a genocide
  • Saudi Aramco is conducting a strategic review of its upstream business, in a move that could potentially see the state-owned firm bring in external investors to some of its oil and gas assets, people with knowledge of the matter said
  • The Bank of Russia unexpectedly raised its key rate by 50 basis points and signaled more tightening as ruble volatility amid a deepening standoff with the West contributed to inflation risks
  • Idriss Deby, who ruled Chad for 30 years, died shortly after securing a sixth term as president, and a military council headed by his son immediately assumed power

Latin America:

  • Peru’s currency hit a record low as investors dumped everything from stocks to sovereign bonds after a little-known leftist candidate gained a clear lead in presidential polls, rattling investor confidence
  • Brazil President Jair Bolsonaro enacted a budget that will likely keep growing in size this year, as the government faces competing demands to spend more during the pandemic and to fund lawmakers’ projects in their home states
  • Mexico’s annual inflation surged further above the target ceiling to the highest in over three years, a spike that for now closes the window for the central bank to resume its cycle of interest rates reductions
    • Mexico’s bill to increase government controls over the fuel market won final congressional approval in the latest blow to the country’s historic opening up of the energy industry
  • Argentina’s economy shrank in February from January, snapping a nine-month growth streak following a historic plunge triggered by the pandemic

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