EM Review: Renewed Trade Deal Hopes Supported Risk Appetite

(Bloomberg) -- Emerging-market currencies and stocks rose last week for the first time in four as concerns about trade tensions eased, with President Donald Trump saying negotiations were “moving along well” and China working on waiving retaliatory tariffs. Optimism on a phase one deal overcame noise caused earlier in the week by Trump’s decision to reinstate tariffs on Argentina and Brazil steel and aluminum exports, alleging the two countries had intentionally cheapened their currencies.

The following is a roundup of emerging-markets news and highlights for the week ending Dec. 7.

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Highlights:

• With a flurry of trade threats across three continents in the span of 24 hours, President Donald Trump reminded financial markets that he’s heading into an election year using tariffs as his main source of international economic leverage
  • Trump said “we’ll see,” on Dec. 15 tariffs, adding “something could happen but we’re not discussing that yet”
  • The U.S. and China are said to be moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal
  • White House economic adviser Larry Kudlow said the two countries are trying to agree on the amount of U.S. agriculture products China is willing to purchase
  • Trump suggested legislation he signed that expresses U.S. support for Hong Kong protesters complicates his efforts to reach a trade deal with China
  • China avoided measures related to trade in its first retaliation against the Hong Kong bill, instead vowing to sanction some rights organizations and halt warship visits to the city
  • The U.S. House of Representatives also overwhelmingly approved legislation that would impose sanctions on Chinese officials over human rights abuses against Muslim minorities, prompting Beijing to threaten possible reprisals
  • Chinese state media said the government would soon publish a list of “unreliable entities” that could lead to sanctions against U.S. companies
  • China’s exports unexpectedly fell in November, while imports rebounded
  • U.S. trade with China extended its slide in October as goods imports from the nation fell to a fresh three-year low amid prolonged talks
  • China is in the process of waiving retaliatory tariffs on imports of U.S. pork and soy by domestic companies
• Trump is reinstating tariffs on steel and aluminum from Argentina and Brazil, alleging the two countries had cheapened their currencies to the detriment of U.S. farmers
  • Brazil’s economy minister said Trump is making “a terrible mistake” and President Jair Bolsonaro said he would talk to the U.S. leader as he has “an open channel” with him
• U.S. job gains roared back in November as unemployment matched a half-century low and wages topped estimates
• Speaker Nancy Pelosi set the House in motion toward a historic vote to impeach Trump on a rapid timetable that could bring the process to conclusion before the Christmas holiday
• India’s central bank unexpectedly kept its benchmark interest rate unchanged as headline inflation breached its medium-term target for the first time in more than a year
• North Korea said it was preparing a choice of “Christmas” gifts for Trump, in the country’s latest effort to pressure the U.S. to offer more concessions in nuclear talks before the new year
  • Trump revived both his “Rocket Man” nickname for Kim Jong Un and the threat of military force against North Korea, in the latest sign of rising tensions ahead of Pyongyang’s year-end deadline
• Saudi Aramco raised $25.6 billion through the sale of a 1.5% stake, valuing the world’s most profitable company at $1.7 trillion; it received total bids of $119 billion; trading of the shares in Riyadh, the capital, will start on Dec. 11
• After a day of debate in Vienna, OPEC agreed to deepen their output-cuts target by 500,000 barrels a day, a delegate said, formalizing the supply reductions the group has already been making for most of this year
• Ukraine sealed a preliminary $5.5 billion loan program with the International Monetary Fund, giving President Volodymyr Zelenskiy a boost before peace talks with Russia
• South Africa’s economy contracted for a second quarter this year in the three months through September as farming, mining and factory output slumped
  • South Africa’s government will place the national airline under a local form of bankruptcy protection as a last-ditch measure to try and prevent its total collapse

Asia:

• A pickup in China’s factory sentiment filtered across Asia in November, though there were few signs of a strong rebound yet
  • The nation injected liquidity into the financial system by offering medium-term loans to banks
  • China’s central bank governor sounded a cautious tone on the health of the global economy, while signaling that the nation’s monetary policy makers will continue to refrain from large-scale easing steps
  • China is hurtling toward another record year of onshore bond defaults
• Hong Kong’s business outlook worsened further in November with the city mired in recession amid ongoing protests and a volatile macroeconomic picture
• Indian Prime Minister Narendra Modi’s government is considering easing lending rules for shadow banks, according to people familiar with the matter
  • India sees higher GDP growth for the second half after recent government measures
  • Consumer confidence in India dropped to its lowest since at least 2014, the year Modi came to power
• Thailand’s Prime Minister Prayuth Chan-Ocha said the nation has to think about expenditure in dollars to help weaken its currency
  • The Bank of Thailand said measures taken so far to curb capital inflows are “baby steps” and policy makers have plenty of tools available to deploy to curb the currency’s strength
  • There’s more chance of the baht weakening and non-residents are starting to short the currency, the Bank of Thailand’s Deputy Governor Mathee Supapongse said
• Indonesia requested that a group of banks submit proposals for bonds denominated in U.S. dollars, and, or euros, according to people familiar with the matter
  • Indonesia is preparing to spend about $40 billion to extend Jakarta’s metro network
  • President Joko Widodo has signed a regulation to order his ministers and officials to streamline business approval rules
  • Stable prices, attractive return on Indonesian assets and the situation in the global economy will provide room for Bank Indonesia to ease monetary policy further, Senior Deputy Governor Destry Damayanti said
  • Central bank has sounded a more cautious tone on interest rates, signaling that the 175 basis points of tightening seen last year may not be fully unwound in the current easing cycle
• Pakistan’s debt rating outlook was changed to stable from negative by Moody’s Investors Service
• The Philippine inflation of 1.3% in November is within the central bank’s forecast and “accords with outlook of a gradual pickup to target midpoint in 2020-21,” Governor Benjamin Diokno said
• Taiwan’s foreign-exchange reserves increased to $474 billion in November from $472 billion in October

EMEA:

• South Africa’s current-account deficit narrowed less than forecast in the third quarter as outflows to foreign shareholders increased
• Zimbabwe’s domestic lenders are steering well clear of longer-dated treasury bills, reflecting mounting concern about rampant inflation in the southern African nation
• Ghana will extend a levy on corporate earnings in selected sectors until 2024 as the West African nation struggles to meet revenue targets
  • Ghanaian President Nana Akufo-Addo said he’ll seek re-election, as campaigning for next December’s vote gets underway in the West African nation
• Namibia’s central bank held its benchmark interest rate for a second time to maintain the currency’s peg to South Africa’s rand despite forecasts that the economy is set to shrink for a third straight year
  • Namibia’s foreign issuer rating was downgraded by Moody’s to Ba2, two levels below investment grade, from Ba1
• Nigeria’s long-term foreign debt rating was affirmed by Moody’s at B2, while its outlook is changed to negative from stable
• Romania’s central bank intervened in the foreign-exchange market to prop up the leu after concerns about the effect of a government spending spree on inflation and the budget pushed the currency to a record low last month
• The top Czech prosecutor renewed fraud charges against Prime Minister Andrej Babis, ordering further investigation and raising the prospect that the billionaire politician may be tried in court
• Poland’s central bank extended its longest-ever pause in interest rates as scrutiny intensifies amid an unexpected economic-growth slowdown that’s paired with accelerating inflation
• Turkish inflation bounced back to double-digits in November, but didn’t heat up enough to block further monetary easing
  • The U.S. is looking at sanctioning Turkey over its purchase of Russian S-400 missile defense system, President Trump says during meeting in London with French President Emmanuel Macron
  • Turkey’s central bank increased the number of monetary policy meetings it will hold in 2020 after criticism from President Recep Tayyip Erdogan
• Lebanon’s central bank took emergency measures Wednesday in an attempt to ease the worst financial crisis the country has faced in decades
• The Russian government may skip all hard-currency debt borrowing next year for the first time since the 2015 crisis after the U.S. tightened sanctions in August
  • German Chancellor Angela Merkel’s government expelled two Russian embassy staff in response to what it says is a lack of cooperation by Moscow in the investigation of a contract killing of a Georgian man in a Berlin city park
• Qatar said its emir has been invited by the Saudi monarch to attend this month’s summit of Gulf Arab nations in Riyadh, in what would be a major breakthrough in intensifying attempts to end a 30-month feud
• Kuwait’s government will invest as much as $1 billion in the initial public offering of Saudi Aramco as the kingdom asks regional allies to bolster the record share sale, according to people familiar with the matter
• The International Monetary Fund approved the immediate disbursement of $133.4 million for Ivory Coast after its sixth review of the country’s economic performance and extended its credit facility program by one year

Latin America:

• Brazil’s economy grew more than forecast in the third quarter as a broad-based expansion led by private investments and agriculture more than made up for a reduction in government spending
  • Industrial production, however, missed estimates in October
  • Brazil will review GDP data for the third quarter to account for billions of dollars of exports that were under reported in a calculation error
  • Lower house speaker Rodrigo Maia wants to put the tax reform bill to a vote in March next year, local media reported
• Higher food costs fueled inflation in Brazil and Chile in November, representing a fresh challenge to monetary policy in both nations
• Chile’s government announced a $5.5 billion stimulus package as the economy contracted at the fastest pace since at least 1996
  • Chile held its benchmark interest rate steady after the protests sent the currency to a record low, reviving inflation concerns
  • Economic activity plummeted 5.4% in October from the month before and retail sales slumped 12.1% year-on-year
• Mexico is offering an olive branch to U.S. Democrats after rejecting a demand they say is key to approving a new North American trade agreement
  • The U.S. House Democrats said a USMCA deal is within reach and urged Mexico to accept a compromise on labor-rights enforcement
  • Mexico is considering a U.S. proposal to remove protections for biologic drugs from the renegotiated Nafta trade deal
• Argentine President-elect Alberto Fernandez named Martin Guzman to become the country’s next Economy Minister
  • Guzman, a protege of Nobel Laureate Joseph Stiglitz at Columbia University, will oversee the nation’s attempts to get out of recession and renegotiate its debt
  • Fernandez said Miguel Pesce will lead the nation’s central bank, which has struggled to retain its credibility over the last two years
  • JPMorgan pulled Argentine peso bonds due in 2021, 2023 and 2026 from its GBI-EM Global and Narrow series
• Ecuador’s economic committee of the National Assembly voted 10-2 to approve the draft of a fast-track tax reform bill
  • National Assembly changed electoral rules in time for the 2021 presidential and legislative elections

--With assistance from Colleen Goko, Selcuk Gokoluk, Yumi Teso, Philip Sanders and Paul Wallace.

To contact Bloomberg News staff for this story: Lilian Karunungan in Singapore at lkarunungan@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, Cormac Mullen

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