EM Review: Stock Rally Paused as Fed, Trade Weigh on Sentiment

(Bloomberg) -- A month-long rally in emerging-market stocks came to a halt last week as the Federal Reserve expressed concern about the path of the recovery, while renewed tension between the U.S. and China weighed on risk appetite. Even so, signs of progress toward a coronavirus vaccine limited declines. Developing-nation currencies and bonds were mixed.

The following is a roundup of emerging-market news and highlights for the week through Aug. 23:

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Highlights:

• Fed minutes for July showed policy makers backed off from an earlier readiness to set a clearer bar for raising interest rates, a step that would underscore their commitment to an extended period of ultra-loose monetary policy
• Pfizer Inc. and BioNTech SE said the Covid-19 vaccine they are jointly developing is on track to be submitted for regulatory review as early as October, as they released additional data from an early-stage study
• President Donald Trump said he called off trade talks with China, raising questions about the future of a deal that is now the most stable point in an increasingly tense relationship. China later said it plans to talk with U.S. officials soon to review progress on their preliminary trade deal
  • The U.S. Commerce Department announced further restrictions on Huawei Technologies Co. aimed at cutting the Chinese company’s access to commercially available chips
  • The U.S. State Department is asking colleges and universities to divest from Chinese holdings in their endowments
  • Oracle Corp.’s bid for the U.S. operations of TikTok received the backing of President Trump
  • The U.S. suspended its extradition treaty with Hong Kong and ended reciprocal tax treatment on shipping with the former British colony
  • The Trump administration is privately seeking to reassure U.S. companies including Apple Inc. that they can still do business with the WeChat messaging app in China, according to several people familiar with the matter
• Democratic and Republican leaders are hinting that they are looking for a path toward reviving stalled negotiations on the next round of pandemic relief for the U.S. economy
• Southeast Asia is facing a strain of the new coronavirus that the Philippines, which faces the region’s largest outbreak, is studying to see whether the mutation makes it more infectious
• Turkey left interest rates unchanged, risking greater volatility in the lira as the central bank looks for a back door way of containing the currency’s weakness
  • Turkey says its natural gas find in the Black Sea will likely be followed by further discoveries, altering the geopolitics of energy trade in its region
  • Turkey’s outlook was revised to negative from stable by Fitch Ratings
• Belarus President Alexander Lukashenko took a more aggressive stance toward the biggest protests in his 26-year rule as the leaders of the European Union refrained from calling for new elections
• U.S. Secretary of State Michael Pompeo formally notified the United Nations of the American demand to reinstate global sanctions against Iran and slammed European allies who oppose the move, accusing them of a failure to lead and appeasing the Iranian regime
• Early South Korean trade figures show the slump in exports easing in August, buoyed by growing demand from the U.S. and other economies reopening from pandemic lockdowns
• Libya’s Turkish-backed government announced a cease-fire, months after inflicting a heavy defeat on Russian-supported military commander Khalifa Haftar

Asia:

• China’s central bank supplied liquidity to commercial lenders to help them manage upcoming government bond sales, while leaving the price of the money unchanged as the economy recovers
  • A new national campaign against food waste in China has sparked a rare bout of speculation over the government’s ability to safely feed its 1.4 billion citizen
  • China’s top banking watchdog cautioned that U.S. dollar dominance combined with the massive stimulus unleashed by the Federal Reserve could push the world to the edge of another financial crisis
  • The Cold Chain Association of China’s southern coastal city of Guangzhou ordered all member companies to suspend imports of frozen meat and seafood from coronavirus-hit areas
  • China’s latest anti-corruption campaign appears to be picking up speed after Shanghai’s police chief became the latest senior law enforcement official targeted by investigators
  • Chinese households are putting more of their savings into property but still holding back on discretionary spending
  • China’s economy can grow this year if the nation achieves its target of adding 9 million jobs, Premier Li Keqiang said
  • China’s President Xi Jinping called for increased efforts to develop the Yangtze River Delta region
• India’s interest rate-setting panel turned cautious about a recent surge in inflation, preferring to wait for price pressures to wane before unleashing more steps to address a sharp slowdown
  • The country’s state-run banks have three more months to buy bonds and commercial paper issued by the local shadow lenders, with such purchases being partially guaranteed by the government, the finance ministry said
  • First-time bond issuers are rushing into India’s debt market as unprecedented stimulus pushes borrowing costs to the lowest since 2005
  • The Reserve Bank of India’s first Monetary Policy Committee completed its four-year term with a mixed record
  • Japan, India and Australia are seeking to build stronger supply chains to counter China’s dominance as trade and geopolitical tensions escalate across the region, according to people familiar with the matter
  • India is stepping up its curbs on Chinese activity in the country, adding extra scrutiny for visas and reviewing Beijing’s links with local universities
• Taiwan accused Chinese hackers of infiltrating government agencies in an effort to glean citizens’ sensitive information

• South Korea temporarily banned all offline church services and events in greater Seoul area as concern over the second wave of coronavirus infections are growing on spiking cases related to churches

  • President Moon Jae-in’s approval rating rose for the first time in three months after he took on a church at the center of a new coronavirus wave
  • South Korea offered its first bond linked to a Libor alternative, joining the global move away from the debt-pricing benchmark
  • New U.S. restrictions against Huawei threaten to weigh on South Korea’s economy, which is counting on chip exports to China to drive its rebound from the coronavirus pandemic
• Kim Jong Un acknowledged that North Korea’s development goals have been seriously delayed; he issued a dire warning for North Korea’s economy amid reports that he delegated some power to his sister, including responsibility for relations with the U.S.
• Indonesia’s central bank left its key interest rate unchanged to shore up support for the sagging currency
• Thailand’s economy contracted the most in more than two decadesm, deepening its recession as the nation’s key drivers of trade and tourism remain hobbled by the coronavirus pandemic
  • Thailand is considering an extension of its state of emergency through Sept. 30 to prevent a second wave of coronavirus cases amid mounting anti-government protests
  • At least four more activists have been arrested for holding anti-government demonstrations

• The Philippine capital returned to a looser lockdown as the government tries to support the economy while curtailing the spikes in coronavirus cases, President Rodrigo Duterte said

  • The Philippine central bank kept its key interest rate unchanged as it watches how previous easing steps filter their way through the economy
  • The Philippines filed a diplomatic protest to Beijing over the Chinese Coast Guard’s move to confiscate equipment used by Filipino fishermen in the disputed South China Sea
  • Overseas remittances unexpectedly rose in June
• Malaysia’s stock exchange is preparing measures to curb excessive speculation on share prices
  • Goldman Sachs Group Inc. and Malaysia signed an agreement to finalize the bank’s $3.9 billion settlement over the 1MDB scandal
  • Malaysia is set for its first state-level polls since Prime Minister Muhyiddin Yassin assumed power after a local court threw out a legal challenge
• Sri Lanka’s central bank kept borrowing costs unchanged after cutting rates five times this year

EMEA:

• Russia opted against holding a scheduled auction of government securities after borrowing costs jumped on speculation about geopolitical fallout from the turmoil in neighboring Belarus

  • Thousands of migrant workers from Central Asia are stuck in Russia because of travel bans, leading some to rely on money from home in a painful reversal of one of the biggest remittance flows in the world
• Belarus President Alexander Lukashenko deployed the military to the country’s borders with the European Union as he complained of unspecified security threats
• Debt securities issued in Ukraine’s 2015 restructuring rose the most since March after the finance ministry purchased 10% of the notes outstanding and Morgan Stanley advised investors to buy
  • The new head of Ukraine’s central bank rejected concerns that his arrival raises the risk of government meddling in monetary policy
• The Polish central bank’s bond purchases may have run its course just five months after its launch, signaling new measures may be needed to help revive the European Union’s largest eastern economy
  • Poland amended its 2020 budget, dropping plans to keep it balanced as a resurgence of coronavirus cases brings about a record deficit
  • Retail sales in Poland increased by the most since the pandemic outbreak started
• Turkey dispatched a drilling ship to an area off the southwestern coast of Cyprus in a move that could stoke territorial disputes with EU member states in the eastern Mediterranean

• Fitch Ratings downgraded Oman for the second time this year, citing the continued erosion of the country’s fiscal and external balance sheets

  • Potential assistance for Oman from wealthier neighbors in the Gulf may not be quite the turning point it was for Bahrain two years ago
  • Oman replaced its finance minister and central bank chairman, consolidating ministries as it’s headed for one of the biggest budget deficits in the Gulf
  • Turkey has floated proposals that would require its airlines to ax foreign pilots and cabin crew before dismissing local workers
• Lebanon’s nationwide lockdown went into effect on Friday
• Bahrain received its first downgrade in over two years from Fitch Ratings, which said it will likely “require further Gulf backing” as the government’s finances remain under strain
  • Bahrain and Sudan will probably be first to follow the United Arab Emirates’ lead and agree to make peace with Israel, the Israeli intelligence minister said, as momentum toward normalized relations grew on diplomatic and economic fronts
• Kuwait has 2 billion dinars ($6.5 billion) of liquidity in its Treasury and not enough cash to cover state salaries beyond October, Finance Minister Barak Al-Sheetan said
• Eskom Holdings SOC Ltd. shuffled some senior managers weeks after missing its own target for restricting power outages
  • South African towns and cities are in increasingly dire financial straits, with a National Treasury report showing they are likely to collect less than a fifth of their outstanding debt
• Ghana plans to go ahead with an initial public offering in a gold royalty fund next month to benefit from soaring prices
• Bank of Zambia reduced its key interest rate for the second time in as many meetings to safeguard the stability of the financial sector and counter the impact of Covid-19
• Malian President Ibrahim Boubacar Keita resigned after being detained by a military junta, prompting immediate international criticism despite the group’s pledge to shepherd a democratic transition
• South Sudan plans to increase its budget by 29% to fund a government that was expanded under a peace deal to end six years of armed conflict
• Mozambique’s central bank held its key interest rate as inflation is expected to accelerate in the short- to medium term
• Zimbabwe central bank maintains key interest rate at 35%

Latin America:

• Brazil’s lower house maintained a freeze on public sector wages that had been unexpectedly voted down by the senate, concluding an episode that revealed cracks in President Jair Bolsonaro’s congressional base

  • Bolsonaro is said to plan extending emergency payments for informal workers through the end of the year, before launching a new social program that will continue to provide assistance to poor families
  • Bolsonaro came to Economy Minister Paulo Guedes’ defense after speculation that he could leave the post amid pressure to increase spending
  • Brazil will include austerity measures, a new social program and payroll tax reductions into an omnibus bill as part of a new plan of action aimed at safeguarding the country’s fiscal credibility
• The collapse of Mexican lender Banco Famsa is spurring concern about risks for the banking system just as the country sinks into its deepest recession in almost a century
  • Mexico’s banks aim to have a plan to deal with deferred payments by the time the current program ends in September, Mexican Banking Association President Luis Nino de Rivera said
  • Luis Videgaray, a former finance minister implicated in the bribery scandal of ex Pemex CEO Emilio Lozoya, said the allegations attributed to Lozoya against him are false and inconsistent

• Argentina’s opposition leaders called on President Alberto Fernandez to drop his proposal for justice reform a day after mass anti-government protests

  • In the next few weeks, if all goes as scripted, Argentine officials will put the finishing touches on a bond restructuring deal and bring an end to the ninth default in the country’s history
  • Argentina’s economy continued to show early signs of recovery in June
• Ecuador received the consent of a majority of bondholders to extend the deadline to settle its $17.4 billion debt restructuring to Sept. 1
  • Former President Rafael Correa aims to become vice president in the 2021 election with Andres Arauz as a presidential candidate
• Colombia sold two-thirds of its gold reserves in a single month just as investors seeking havens against global turmoil were about to drive the metal to a record high
• Chile is touting generous tax breaks for investors, lower taxes for small and mid-sized businesses and delayed implementation of electronic receipts in its effort to rebuild its economy from the coronavirus pandemic
• Peru’s coronavirus crisis is the worst in the world by several measures on a per-capita basis
  • Peru’s economy collapsed at a record pace in the second quarter
• The Trump administration is considering additional sanctions on Venezuela aimed at halting the remaining fuel transactions permitted with the South American nation, according to people familiar with the matter

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