Stocks Edge Lower as China Factory Inflation Jumps: EM Review

Emerging-market stocks crept lower over the week with the bulk of the declines on Friday after China said producer prices jumped in March, adding to concern inflation is gathering pace. It was a similar story in the U.S., where faster-than-expected producer-price inflation reported the same day pushed Treasury yields back up, crimping weekly gains in developing-world currencies.

The following is a roundup of key emerging-market news for the week through April 9:

Highlights:

  • International Monetary Fund upgraded its global economic growth forecast for the second time in three months, predicting a 6% expansion. The fund also said China will drive the expansion in the coming years as the world recovers from the pandemic
  • Jerome Powell pledged to get the U.S. back to a “great economy” and said the central bank has the tools to curb any inflationary pressures. Minutes from the latest Federal Open Market Committee showed the central bank isn’t in a hurry to taper its bond-buying program
  • OPEC+ expressed growing confidence in the global recovery by agreeing to increase oil production gradually in coming months. The Organization of Petroleum Exporting Countries and its allies will add more than 2 million barrels a day to world oil supplies from May to July
  • Global funds trimmed holdings of China’s sovereign bonds for the first time in two years as their yield premium over Treasuries narrowed and the government announced plans for more debt sales
Asset moves as of 4:20 p.m. in New YorkWeekly
MSCI EM stocks index-0.6%
MSCI EM FX index+0.1%
Bloomberg Barclays global EM local-currency bond index (Up to Thursday)+0.6%

Asia:

  • China’s central bank asked the nation’s major lenders to curtail loan growth for the rest of this year after a surge in the first two months stoked bubble risks, according to people familiar. Lending the same amount as last year would bring the outstanding balance to about 192 trillion yuan ($29 trillion) in 2021, an annual increase of about 11%, the least in more than 15 years
  • China’s producer prices climbed the most since July 2018 as commodity costs surged, a worrying sign for policy makers seeking stable inflation and adding to global risks
  • India’s central bank took a step toward formalizing quantitative easing, pledging to buy up to 1 trillion rupees ($14 billion) of bonds this quarter to keep borrowing costs low and support the economy’s recovery. The rupee has been the biggest loser among Asian currencies following the news
  • Indonesia’s President Joko Widodo is backing a push to expand the central bank’s mandate to include bolstering the economy, throwing his public support behind a legislative move that some analysts see as risking the monetary authority’s independence

EMEA:

  • Iran’s chief negotiator at nuclear talks in Vienna said the sides were focusing on removing U.S. sanctions in a single step, in a statement of progress that didn’t specify what Tehran was offering in return
  • Israel’s Prime Minister Benjamin Netanyahu was tapped to try to form the country’s next government, a challenge that offers a way out of his legal woes but could prove impossible if he can’t muster enough backing in parliament
  • Delays in Covid-19 vaccine shipments to Africa are expected to continue this month after India temporarily banned exports of the shots as it grapples with a second wave of infections
  • A deadly raid by insurgents that stopped work at a gas project that Mozambique depends on for an economic revival has done little to derail a world-beating rally in the country’s currency

Latin America:

  • Peru and Ecuador are holding presidential elections this weekend. The races are still highly uncertain, but the outcomes will be crucial for their countries’ assets. Peru’s sol had its biggest rally since 2008 earlier in the week, while Ecuador’s bonds have rebounded from their March lows
  • Brazilian assets gained toward the end of the week as lawmakers and the government appeared to be edging closer to an agreement to solve the 2021 budget gridlock. Meantime, annual inflation spiked above the upper limit of the target range last month
  • Mexico sold dollar bonds for a second time this year, seizing on the rebound in emerging-market assets. While inflation reached a two-year high in March as energy prices surged, the majority of Banxico’s board is looking for opportunities to lower rates, according to the latest central-bank minutes
  • Colombia’s Finance Ministry officials are making changes to the text of a tax bill based on comments from lawmakers before it is submitted to Congress, according to people familiar with the process

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