Risk-On Mode Stays in Vogue With Fed and Trade Push: EM Review

(Bloomberg) -- Emerging-market currencies and equities had their best weekly rally in more than two months as U.S.-China trade talks concluded on a positive note and U.S. Federal Reserve officials signaled patience in tightening monetary policy.

Asset Moves as of 4:20 p.m. in New York on FridayWeekly
MSCI EM stocks index+3.8%
MSCI EM FX index+0.9%
Bloomberg Barclays Global EM Local Currency bond index (up to Thursday)+0.7%

Highlights:

  • China’s yuan was among the best performers as President Donald Trump is increasingly eager to strike a deal with China soon to stem U.S. stock market losses, according to people familiar with internal White House deliberations
    • China described the three-day trade talks as “extensive, in-depth and detailed,” while the U.S. noted a commitment by President Xi Jinping’s government to buy more U.S. agricultural goods, energy and manufactured products
    • Chinese Vice Premier Liu He is scheduled to visit Washington D.C. for more trade talks Jan. 30 and Jan. 31, according to people familiar with the plans
  • Federal Reserve policy makers said the central bank “could afford to be patient about further policy firming,’’ according to minutes of the Dec. 18-19 meeting
    • From Chairman Jerome Powell on down, Fed officials hammered home the message that it will be especially cautious about pushing ahead with interest-rate increases after raising them four times last year
  • President Trump made the case for building a wall on the Mexican border in a prime time televised address as the partial government shutdown continued
  • Saudi Arabia sold $7.5 billion of international bonds in the first test of how much impact the brutal killing of Washington Post columnist Jamal Khashoggi has had on demand for the nation’s assets
  • The World Bank cut its 2019 global growth forecast to 2.9 percent from 3 percent and lowered its expansion estimate for emerging markets to 4.2 percent from 4.7 percent
  • Investors pumped $1.4 billion into exchange-traded funds that buy emerging-market stocks and bonds as 2019 began, marking the 12th straight week of inflows, data compiled by Bloomberg show

Asia:

  • China’s benchmark repurchase rate fell to its lowest since 2016 as interbank liquidity improved after the central bank announced a cut in banks’ reserve-requirement ratios
    • The finance ministry is set to propose a small increase in the targeted budget deficit for this year as officials seek to balance support for the economy with the need to keep control of debt levels, two people familiar with the matter said
    • Factory inflation slowed sharply in December, easing for a sixth month to the weakest since late 2016, on softening demand and lower commodity prices
  • Kim Jong Un spent a little more than a day in Beijing after talking and dining with President Xi, according to South Korean media, in a show of unity as they engage in delicate negotiations with Trump’s administration
    • Hanoi is being discussed as the likely location for second summit between Trump and Kim, South Korea’s Munhwa Ilbo newspaper reported, citing unidentified diplomatic sources in Seoul and Washington
    • Kim and Xi backed a second summit between the North Korean leader and Trump, Chinese state media reported
    • South Korean President Moon Jae-in said a second summit was imminent
  • India’s rupee was among the worst performers; Prime Minister Narendra Modi’s administration is pledging to extend a 10 percent quota for government jobs and higher education places to groups including upper caste Hindus, who form the backbone of his support base, just months before a general election
    • The Samajwadi Party and Bahujan Samaj Party have decided in principle to unite to contest the polls in India’s most-populous state of Uttar Pradesh for the general election due by May
    • The government predicted economic growth of 7.2 percent for the year through March 2019
  • Indonesian President Joko Widodo and his vice presidential candidate Ma’ruf Amin were predicted to win by 54.9 percent against 34.8% for challengers Prabowo Subianto and Sandiaga Uno, if elections were held now, according to a survey published by Indikator Politik Indonesia
    • The country will find it "very hard" to achieve economic growth of 5.3 percent for 2019 as targeted in the budget, said Finance Minister Sri Mulyani Indrawati
    • The rupiah was among the top performers; data showed foreign reserves increased to $120.7 billion in December from $117.2 billion in November
  • Demonstrators gathered for the second time in three days in downtown Bangkok on Tuesday to protest the possibility of another delay in Thailand’s general election
    • The interior affairs minister confirmed information from a leaked memo instructing officials across the country to halt election preparations, Khaosod English reported
    • The Bank of Thailand has discussed lowering its inflation target as price pressures continue to abate
  • Foreign ownership of Malaysian government and corporate bonds and bills fell 1.2 percent month-on-month in December
    • Malaysia is looking into allegations that China offered to help deter probes into 1MDB in exchange for infrastructure projects, after the Wall Street Journal reported that senior Chinese leaders offered to help bail out the troubled state fund in 2016
    • Sultan Muhammad V has stepped down as Malaysia’s 15th King, according to a statement from the palace that didn’t give a reason for the abdication
  • The Philippines raised $1.5 billion in a sale of 10-year dollar bonds
    • Policy makers noted lower inflation expectations amid the decline in global oil price and a more stable peso, according to minutes of central bank’s December rate meeting
    • Exports unexpectedly decreased in November, falling 0.3 percent on year
  • Taiwan’s premier announced his resignation, along with the rest of the cabinet, leaving President Tsai Ing-wen to build a new administration just 12 months away from the 2020 presidential election
    • Su Tseng-chang, 71, was named as his replacement

EMEA:

  • Saudi Aramco plans to tap the debt market in the second quarter to finance the acquisition of petrochemical giant Sabic, likely issuing its first ever international bond and disclosing its accounts in the process
  • Lebanon’s caretaker Economy Minister Raed Khoury said there are “definitely” no plans to restructure debt after the finance minister was quoted Thursday as saying the move was being studied. Earlier in the day, Lebanese dollar bonds due 2028 plummeted, fueling the biggest jump in yields since the notes were issued in 2015
  • The Turkish lira was among the worst performers; the nation sold $2 billion in one of the first international bond sales this year, offering a premium to attract bids
    • President Recep Tayyip Erdogan, frustrated by evolving U.S. conditions for quitting Syria, refused to meet with visiting U.S. National Security Adviser John Bolton and ripped into U.S. proposals to give Kurds a key role in Syria after the withdrawal
    • Turkish collection of inflation data is up to international standards, transparent and verifiable, according to a statement by the statistics office
  • Polish central bank Governor Adam Glapinski dismissed talk he may resign as criticism mounts from across the political spectrum following controversy over the salaries of his closest aides
    • Poland left its record-low policy rate unchanged amid signs that slower global growth is hitting its economy
  • Russia’s central bank dumped $101 billion in U.S. holdings from its reserves, shifting into euros and yuan last spring
  • A gauge measuring South Africa’s manufacturing industry expanded for the first time in nine months in December as new sales and export orders improved
  • Ivory Coast is planning to sell at least $1 billion in Eurobonds
  • Military officers seized Gabon’s state broadcaster to announce plans to “save a democracy in danger” in what appeared to be a coup against ailing President Ali Bongo. The soldiers have been arrested

Latin America:

  • Former senior Venezuelan government officials were sanctioned by the U.S. Treasury as Trump’s administration ramped up pressure to punish President Nicolas Maduro
  • Mexico announced a broad plan to boost public offerings and spur growth in the financial system, including cutting taxes on the proceeds of initial public offerings
    • AllianceBernstein said the government’s efforts to deepen financial markets may attract more investors to the country
    • Inflation accelerated in December, boosting the case for a prolonged period of higher interest rates
    • Finance Minister Carlos Urzua said in an interview with Bloomberg News that the peso can rally to 19 per dollar
    • Finance Ministry confirmed it completed 2019 oil hedge at $55 per barrel
  • Brazil’s local media reported that Economy Minister Paulo Guedes may present a deeper pension reform proposal to President Jair Bolsonaro, helping lift the real
  • Argentine bonds rallied, recovering from last month’s selloff, amid improved risk appetite; Aberdeen said the notes are catching up after being left behind in 2018, and they’re also being buoyed by a lack of financing needs in 2019
    • The Argentine peso advanced 1.24% on the week, the best performance in more than two months; the currency breached central bank’s FX trading band despite repeated intervention
  • Peru’s central bank held borrowing costs unchanged for a 10th month as policy makers look for signs the economy is on a firmer footing before removing stimulus
  • Chile’s consumer prices slipped in December, but economists expect the central bank to shrug off deflation and keep gradually raising the key interest rate
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