Emerging Markets Get Fresh Boost of Hope Over Trade Deal

(Bloomberg) -- Emerging-market stocks jumped to an almost eight-month high last week and currencies rose to the strongest since July as the U.S. and China finally agreed on a phase-one trade deal. Mixed signals along the week whipsawed markets, but ultimately every developing-nation currency except the Turkish lira advanced, also helped by commitments in the developed world to keep interest rates low.

The following is a roundup of news from emerging markets and highlights for the week ending Dec. 15.

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Highlights:

• The U.S. and China said they agreed to the details of the first phase of a broader trade agreement in a move that will see the U.S. reduce tariffs, at least temporarily calming fears of an escalating trade war involving the world’s two largest economies

  • The deal hinges on China increasing purchases of farm goods such as soybeans and pork, and making new commitments on intellectual property and currency
  • In return, the U.S. agreed to reduce some existing tariffs, halving 15% duties on $120 billion of imports but maintaining a 25% levy on some $250 billion of Chinese goods. The U.S. will also delay new import taxes set to take effect on Sunday on $160 billion of products such as smartphones and toys
  • China will suspend additional tariffs on certain imports from the U.S., according to the Ministry of Finance
• The Federal Reserve left interest rates unchanged and signaled it would stay on hold through 2020. Chairman Jerome Powell repeatedly stressed his belief that the labor market can improve further despite unemployment being at a half-century low
• The House Judiciary Committee plowed ahead with articles of impeachment against President Donald Trump, despite objections and amendments from the panel’s Republican members
• China announced that it would target economic growth next year within a “reasonable range,” maintain its proactive fiscal policy and keep prudent monetary policy, according to a summary of decisions from the main annual economic planning meeting
  • The Asian nation’s ambassador threatened Germany with retaliation if it excludes Huawei Technologies Co. as a supplier of 5G wireless equipment, citing the millions of vehicles German carmakers sell in China
• Prime Minister Boris Johnson won a decisive election and put the U.K. on track to leave the European Union next month, which reduced the uncertainty over Brexit
• The Turkish central bank delivered another rate cut that exceeded forecasts, emboldened by the lira’s stability and egged on by President Recep Tayyip Erdogan’s calls for more aggressive easing
• Brazil cut its benchmark rate by half a percentage point to a record low and left the door open for additional easing
  • S&P Global Ratings revised Brazil’s outlook to positive from stable, putting the Latin American country a step closer to the first upgrade since 2011
• Buoyed by slower inflation and progress toward receiving billions of dollars in foreign aid, Ukraine cut borrowing costs by twice as much as analysts predicted
• Saudi Aramco shares climbed for a second day on Thursday, but the oil giant failed to hold on to the $2 trillion valuation that Crown Prince Mohammed bin Salman had long targeted
  • The stock jumped the daily 10% limit on the first day of trading in Riyadh on Wednesday
• Argentina’s new economy minister, Martin Guzman, outlined broad themes about policy proposals to revive the economy, but didn’t delve into specifics that Argentines and investors have waited months to hear
  • The country will open talks with bondholders to delay the nation’s debt payments, Guzman said in his first public comments as minister, adding that he’s already negotiating with the International Monetary Fund for a new program amid a recession

Asia:

• The Asian Development Bank cut its economic growth forecasts for China and India to below 6%, dimming prospects across the continent
• China’s consumer inflation accelerated to a seven-year high in November while producer prices extended their run of declines, complicating the central bank’s efforts to support the economy
  • Bonds from at least 57 Chinese companies totaling $43.4 billion face repayment pressure, according to company and ratings firm statements compiled by Bloomberg
  • The country plans to maintain stability in the foreign exchange market in 2020 and will take steps to prevent financial risks in the sector, the State Administration of Foreign Exchange said
• More than 5,600 retail jobs could be lost and thousands of stores shut down over the next six months, as pro-democracy protests in Hong Kong continue to disrupt sales during the crucial festive period
• A U.S. federal commission has called for sanctions against India’s home minister and other top leaders if the country passes a controversial bill that will prevent Muslim migrants from neighboring countries from receiving citizenship
  • India’s parliament approved the controversial bill after hours of heated debate among lawmakers and protests in some parts of the country
  • India may have its debt rating downgraded in the event of a major economic slowdown, S&P said
  • The country is considering raising the investment limit of foreigners in government bonds to at least 10% of the outstanding stock from 6% currently, the Business Standard reports, citing unnamed sources
  • Inflation galloped to its highest level in more than three years, giving monetary policy makers reason to keep rates on hold despite flagging economic growth

• South Korea’s parliament approved a 512.3 trillion won ($437 billion) budget for 2020 that aims to counter economic headwinds and support areas that can become new growth drivers

  • The jobless rate ticked higher for a third month, an unexpected outcome that illustrates the challenge of boosting hiring in an economy struggling with slumping exports and weak investment
  • The total balance of South Korean government bonds climbed to 695.7 trillion won at end of October from 691.5 trillion won the previous month
• North Korea took its most personal swipe at Trump in more than two years, saying the U.S. leader’s recent comments made him sound like a “heedless and erratic old man”
• Indonesia’s cabinet may amend a legally imposed cap on the budget deficit, which would allow the government to spend and borrow more to stimulate growth in Southeast Asia’s biggest economy. Fiscal flexibility may be a good thing for Indonesia, Fitch Ratings said
  • The nation sees a wider deficit as the right response amid a slowdown, according to Finance Minister Sri Mulyani Indrawati
  • Indonesia will ramp up its fiscal stimulus in the first quarter of next year to support growth amid a global slowdown, the economy minister said
  • The government said the European Union’s tariffs on the Asian nation’s biodiesel shipments are “unacceptable” and all options to counter the policy are on the table, including retaliatory actions
  • Bank Indonesia sees current-account deficit at 2.7%-2.8% of gross domestic product in 2019
  • The central bank to hold more daily local NDF auctions from Jan. 2
• Thailand’s economy is expected to grow more than 3% next year and the government stands ready to issue more stimulus if necessary, Finance Minister Uttama Savanayana said
  • The medium-term fiscal position remains strong and there’s scope for further stimulus steps, Deputy Prime Minister Somkid Jatusripitak said
  • S&P raised its ratings outlook on Thailand to positive from stable, citing political stability and expectations that growth will recover modestly
• The World Bank lowered Malaysia’s 2020 economic growth forecast to 4.5%, largely due to weaker-than-anticipated investment and export growth in the third quarter of this year

• The Philippine central bank kept its key interest rate unchanged for a second straight meeting at 4%. Bangko Sentral ng Pilipinas maintained forecasts for average inflation until 2021 as it kept the policy rate at 4%, Assistant Governor Iluminada Sicat said

  • Bangko Sentral ng Pilipinas is considering to cut the key rate by 50 basis points in 2020, Governor Benjamin Diokno said
  • The Philippines will no longer target economic growth as high as 8% by the time President Rodrigo Duterte steps down in 2022, according to his economic managers
  • The country’s trade deficit for October came in at $3.25 billion, less than estimate $3.6 billion, but wider than a revised $3 billion a month earlier
• Taiwan’s exports rose the most in more than a year as shipments to China recovered. Exports increased 3.3% in November from a year earlier, the fastest pace since October last year, shortly after the U.S. imposed tariffs on $200 billion of Chinese products
  • The majority of foreign capital inflows recently have gone to equities, with smaller amounts in bonds and in cash, Taiwan central bank deputy governor Yen Tzung-ta said

EMEA:

• Turkey calls on U.S. not to do anything that could harm their bilateral ties, warning its NATO ally against sanctioning Turkey or recognizing mass killings of Armenians during dying years of Ottoman Empire a century ago as “genocide”
  • The authorities have extended their campaign against perceived political enemies into the $750 billion financial industry
  • Turkey’s parliament speaker Mustafa Sentop submits security and military cooperation deal with Libya to parliament for approval after the maritime boundary delimitation agreement has been activated in the past week, Hurriyet newspaper reported
• Saudi Arabia is reviewing its plan for life after oil with Crown Prince Mohammed bin Salman said to be unsatisfied with progress and the government seeking to control spending
  • The kingdom may tap international debt markets as early as next month as it seeks funding to help bridge its widening budget deficit
• Serbia was upgraded one level to BB+ by S&P Global Ratings
• For many bond investors, it’s a matter of when, not if, Lebanon restructures its $87 billion of debt as it reels under a deepening financial crisis. Working out what the trigger would be or the extent of the fallout is another matter entirely
  • The nation’s president ordered a week-long postponement in talks to pick a new premier, just one day before lawmakers were set to name a businessman to head the next cabinet
  • Moody’s Investors Service said emergency measures by the central bank to address foreign-currency shortages forced three of the country’s top lenders into a “deposit default”
• The crisis with Qatar “continues,” a top United Arab Emirates official said after high-level Qatari participation at a Riyadh summit led to speculation that the regional rift could come to an end
• Egypt’s inflation accelerated for the first time in five months, reaching 3.6% in November as the effect of last year’s surge in prices faded but offering the central bank little reason to reverse a monetary easing cycle
• South African inflation slowed in November, getting closer to a nine-year low, as calls increase for the central bank to help support an economy at risk of a recession
  • Manufacturing production contracted for the fifth consecutive month in October, the longest such streak since the global financial crisis
  • Eskom Holdings SOC Ltd., South Africa’s state-owned power utility seen by Goldman Sachs Group Inc. as the biggest threat to the country’s economy, implemented week-long rolling blackouts
  • While the power cuts are implemented to prevent a collapse of the electricity grid, they have a debilitating effect on the economy by curtailing mining activity and factory output and causing crippling traffic delays
  • Portfolio investment inflows rose to the highest level in more than a year in the third quarter after the country’s biggest Eurobond sale yet
• Bank of Russia Governor Elvira Nabiullina hinted she may take a breather after delivering five consecutive interest rate cuts, potentially putting the brakes on a rally in Russian assets this year
• Uganda will spend as much as a fifth of government revenue on interest payments in this financial year and the IMF warned this could reduce expenditure on human capital and infrastructure projects
  • The central bank held its benchmark rate at 9%, saying subdued inflation provides room to shield the economy from global headwinds and increasing domestic needs for private-sector financing
• Ghana’s inflation rate rose to the highest level in four months in November as the cedi continued to weaken
• Poland’s government plans to place new restrictions on judges, ignoring concerns by the European Union and its own Supreme Court that it’s eroding the rule of law
• Romania’s credit outlook was cut by S&P, which voiced skepticism at the new government’s efforts to tame a budget deficit that’s ballooning beyond EU limits
• Czech inflation surprisingly accelerated to the fastest pace in seven years, which may rekindle the debate over rate increases when the central bank meets next week

Latin America:

• Brazil’s economic activity expanded at a modest pace for a third consecutive month in October, as policy makers signal more monetary easing may be on tap amid below-target inflation
  • Retail sales rose for a sixth consecutive month in October
  • Lower house of Congress approved the base text of a bill that facilitates the privatization of water and sewage treatment. The government sees the approval of the bill as crucial to attracting foreign investment

• Argentina is willing but unable to pay its debt under current conditions and needs the economy to grow again before meeting its obligations, President Alberto Fernandez said in his first speech after being sworn in

  • The IMF is waiting for the details of the new Argentine government’s economic plans to review its $56 billion credit line, its chief spokesman said
  • Argentina, the world’s biggest seller of processed soybean meal and oil, raised export taxes on Saturday as the government seeks to fund spending under new president

• Mexico’s Senate passed changes to a new NAFTA replacement free-trade deal with the U.S. and Canada

  • Inflation slowed to slightly below the central bank’s target for the first time since 2016, bolstering economists’ expectations that policy makers will keep cutting interest rates this month
  • Mexico objected to the congressional proposal to create as many as five U.S. labor attaches to monitor implementation of the free trade deal with the U.S. and Canada
• Chile’s lower house of Congress rejected a proposal to impeach President Sebastian Pinera over his handling of nearly two months of unrest that has left more than 20 dead and caused a slump in economic activity
• Peru’s central bank kept borrowing costs unchanged at the lowest level since 2010 as policy makers gauge the need for additional stimulus amid delays to public works spending and slowing global growth
• Venezuela President Nicolas Maduro said a court ordered the capture of members of an opposition group, including National Assembly leader Juan Guaido, for their role in an alleged conspiracy that Maduro claimed had been foiled

--With assistance from Colleen Goko, Selcuk Gokoluk and Paul Wallace.

To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Netty Ismail in Dubai at nismail3@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, Karl Lester M. Yap

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