EM Review: Surprise Fed Cut Gave Risky Assets Short-Term Relief

(Bloomberg) -- Emerging-market stocks and currencies eked out their first weekly gain in three as Chinese equities rebounded and the Federal Reserve’s emergency rate cut provided short-term relief to riskier assets. That optimism evaporated by the end of last week, though, as coronavirus cases in the U.S. and Europe surged and as the OPEC+ alliance broke down.

The following is a roundup of emerging-markets news and highlights for the week ending March 8.

Read here our emerging-market weekly preview.

Highlights:

• The Federal Reserve slashed interest rates by half a percentage point in the first such emergency move since the 2008 financial crisis, amid mounting concern that the coronavirus outbreak threatens to stall the record U.S. economic expansion
  • Global policy makers sought to reassure markets that they’re ready to respond to the outbreak
  • The Group of Seven’s pledge to coordinate responses to the outbreak, followed by the Fed‘s rate cut, set off a flurry of activity Wednesday from policy makers across Asia-Pacific

• OPEC+ talks ended in dramatic failure, auguring the end of a diplomatic alliance between Saudi Arabia and Russia that has underpinned crude prices and changed the balance of power in the Middle East

  • Brent crude, the global benchmark, plunged the most in more than a decade on Friday
  • Saudi Arabia plans to boost oil output next month to well above 10 million barrels a day. The world’s largest oil exporter engaged in an all-out price war on Saturday by slashing pricing for its crude by the most in more than 30 years
• Global economic growth will sink to levels not seen in over a decade, according to the OECD, which warned of possible global contraction this quarter
• Coronavirus fear gripped bond markets around the globe, sending yields to record lows from Toronto to London and Sydney a day after U.S. Treasuries reached unprecedented territory
  • 30-year U.S. yields slid through 1.5% for the first time on Friday
• Malaysia cut its benchmark rate Tuesday, following other central banks in boosting stimulus to counter the impact of the virus

• Lebanon plans to miss a $1.2 billion Eurobond payment due Monday and seek talks with creditors to restructure its entire $90 billion debt pile, setting the stage for the first default in the crisis-ridden country’s history

  • The showdown between the Lebanese government and local banks took a new twist when a freeze order on 20 lenders was lifted just hours after it was first imposed
• South Africa’s economy slumped into its second recession in consecutive years as power cuts weighed on output and business confidence dropped, adding to pressure on the central bank to cut rates

• Saudi authorities on Friday rounded up the brother and a nephew of Prince Mohammed’s father, King Salman bin Abdulaziz, on the grounds they were plotting a coup, according to a person familiar with the matter

  • The Wall Street Journal reported that dozens of Interior Ministry officials, senior army officers and others suspected of supporting a coup attempt were also detained. Authorities later began releasing some of those questioned in the clampdown, the Journal reported separately on Sunday
• North Korea launched two unidentified projectiles off its eastern coast, South Korea’s defense ministry said, a move that comes just after the first anniversary of the failed Hanoi summit between leader Kim Jong Un and U.S. President Donald Trump

Asia:

• Asia’s manufacturing took a tumble in February under the weight of the rapidly spreading coronavirus, with a severe contraction in activity in China driving down output across the region
• More than $54 billion in budget support has already been pledged or is under consideration to counter the virus’s impact, with Asian governments adopting a mix of cash handouts, tax breaks and transfers
• China’s exports fell more than expected in the first two months of this year as the coronavirus outbreak led to extended holidays, depressed factory output, and blocked transport and movement across the country
  • China’s financial regulators will allow the nation’s lenders to delay recognizing bad loans from smaller businesses reeling from the virus outbreak, giving temporary reprieve to trillions of yuan of debt
• Malaysia’s new Prime Minister Muhyiddin Yassin has pledged to fight corruption and strengthen governance, saying he is no traitor but stepped in to save the country from political turmoil
  • Malaysia has delayed its parliament sitting by more than two months, forcing former leader Mahathir Mohamad to wait until May for a confidence vote against the new premier
  • Malaysian Anti-Corruption Commission Chief Commissioner Latheefa Koya says she is quitting to return to her practice as a human rights advocate and denied speculation she was pressured to resign
• South Korea’s government said it’s seeking a 11.7 trillion won ($9.7 billion) extra budget to help businesses hit by the virus outbreak
  • Bank of Korea Governor Lee Ju-yeol said the central bank needs to “appropriately” consider changes in policy conditions such as Fed rate cut for maneuvering monetary policy in future
  • South Korea’s inflation slows for the first time in 5 months as the coronavirus weighs on domestic consumption
  • Kim Jong Un sent South Korean President Moon Jae-in a letter expressing condolences over the coronavirus outbreak, in the North Korean leader’s first public overture to his counterpart in more than four months
• India’s central bank governor said he’s ready to act to shield the economy from the coronavirus and reiterated there’s room to cut interest rates if needed
  • India’s Finance Ministry sought Parliament approval for additional spending of 4.8 trillion rupees ($65 billion) in the current fiscal year, according to supplementary demand for grants presented on Friday
  • India’s Supreme Court struck down a central bank directive that effectively outlawed virtual currencies. The Reserve Bank of India is planning to file a petition against the order, Economic Times reported, citing people it didn’t identify
  • India’s troubled shadow banks face their biggest test yet in the months ahead: a record bill to settle in the local debt market. The lenders will need to repay 1.1 trillion rupees of local-currency bonds in the three months starting April 1
  • India’s central bank finally lost patience with Yes Bank Ltd.’s efforts to raise new capital, seizing control of the beleaguered lender and placing strict limits on its operations while a rescue plan is devised
  • Street protests and violence, which culminated in a riot that killed more than 46 in capital New Delhi during Trump’s state visit, have raised concerns about whether investors may need to further temper expectations for Asia’s third-largest economy
  • The Indian central bank is planning to infuse liquidity into the system through a second round of long-term repo operations, Reuters reported, citing three government officials it didn’t identify
• Indonesia is working on a second stimulus package, adding to the central bank’s aggressive moves to counter the impact of the coronavirus on financial markets
  • The Indonesia Stock Exchange banned short selling in stocks after the coronavirus outbreak pushed the nation’s equities to the cusp of a bear market
• The Thai government is considering stimulus measures worth more than 100 billion baht ($3.2 billion), Finance Minister Uttama Savanayana said
• The Philippines is readying fiscal and other forms of stimulus measures, Finance Secretary Carlos Dominguez said
  • Philippine central bank Governor Benjamin Diokno said government spending will be more effective than monetary easing in addressing the economic slowdown triggered by the coronavirus outbreak
  • Government’s budget deficit may hit 3.3%-3.5% of GDP this year, exceeding the 3.2% target, due to the virus outbreak, according to Economic Planning Secretary Ernesto Pernia
  • President Rodrigo Duterte backs a probe into cases of dollar smuggling after a lawmaker sounded the alarm on large amounts of cash brought in by Chinese nationals assisted by local authorities
  • Inflation eased to 2.6% year on year in February from 2.9% in January
• Sri Lankan President Gotabaya Rajapaksa called for early parliamentary elections in order to consolidate power and push forward his agenda to revive the South Asian economy
  • Sri Lanka kept its benchmark interest rate unchanged after easing in January

EMEA:

• Russian President Vladimir Putin and his Turkish counterpart Recep Tayyip Erdogan announced another cease-fire in the deepening crisis in Syria’s Idlib province
• The Fed’s rate cut just took some of the sting out of the inflation wave sweeping eastern Europe, helping the region’s currencies beat peers
• Poland’s central bank is keeping official borrowing costs on hold as it assesses the fallout from the coronavirus outbreak
• Ukrainian President Volodymyr Zelenskiy’s popularity has taken a hit, but it’s his prime minister who’s paid the price
• South Africa’s current-account deficit narrowed to a nine-year low in the fourth quarter as outflows decreased
  • The nation’s companies have announced plans to cut more than 10,000 jobs less than three months into 2020 as faltering economic growth increases the strain in a country where a third of the workforce is unemployed
• A plan to deal with South African power company Eskom Holdings SOC Ltd.’s 454 billion rand ($28 billion) of debt is expected to emerge by mid-year, Public Enterprises Minister Pravin Gordhan said
• Nigeria has now topped South Africa as the continent’s biggest economy
• Kenya’s inflation rate rose in February after a slight cooling in the previous month as unseasonal rain destroyed harvests and fuel prices rose. Annual inflation quickened to 6.4% from 5.8% in January
• Mozambique’s central bank left its benchmark lending rate unchanged for a third straight meeting, as a slide in the southeast African nation’s currency threatens to put upward pressure on inflation
• Senegal’s government confirmed the country’s first coronavirus case, the second in sub-Saharan Africa
• Policy makers in the Gulf followed the Fed’s emergency move on Tuesday, lowering interest rates in response to the coronavirus outbreak as the focus shifts to the need for fiscal stimulus to offset the damage to regional economies
  • Saudi Arabia’s economy barely expanded last year, increasing the need for the government to reconsider its planned spending cuts to deliver faster growth in 2020 in the face of disruptions from the coronavirus and the prospect of lower energy prices
• Norway’s $1.1 trillion sovereign wealth fund reduced holdings of Saudi Arabian equities by about 60% last year as it reviews an internal benchmark that guides its global stock purchases
• Saudi Arabia took the unprecedented step of suspending the Umrah religious pilgrimage for its citizens and residents, saying it wanted to prevent the coronavirus from spreading through the “intense flow” of crowds to holy sites
• An investment company linked to Italy’s largest private hospital operator is seeking a partner to bid for NMC Health Plc, the Middle Eastern health-care company being investigated by the U.K.’s financial regulator over fraud allegations, according to people with knowledge of the matter
  • NMC Health founder Bavaguthu Raghuram Shetty is considering selling his Abu Dhabi-based pharmaceuticals business, Neopharma, after drawing interest from potential investors, according to people with knowledge of the matter
• Prime Minister Benjamin Netanyahu’s path to forming the next Israeli government became harder after near-final election results showed his lead narrowing

Latin America:

• Swap rates slumped in Latin America after the Fed’s rate cut
• Brazil’s central bank stepped in four times on Thursday and Friday to support the real, but failed to prevent the currency from extending this year’s worst-in-the-world decline
  • Policy makers offered a total of $5 billion in foreign-exchange swaps in the week
  • Traders increased bets on further rate cuts as the central bank opened the door for additional easing, saying in a statement the coronavirus creates a bigger risk of an economic slowdown than of a spike in inflation
  • GDP grew 1.1% in 2019, similar to the expansion posted since Brazil emerged from recession in 2017
• Mexico’s finance ministry and central bank are in talks to coordinate their response to the coronavirus, although impact has been marginal so far
  • President Andres Manuel Lopez Obrador said Mexico’s Environment Ministry and its federal comptroller will investigate Enerall, a company founded by his chief of staff
  • Mexico will invest 12 billion pesos ($570 million) in revamping its refineries this year, said Lopez Obrador
  • The president’s approval rate fell in two national opinion polls
• Argentina swapped 65% of a peso-denominated bond that matures March 6
  • Some of Argentina’s largest creditors flew to Buenos Aires for talks with Alberto Fernandez’s government, even as the global coronavirus outbreak forced counterparts to cancel trips
  • Argentina cut its benchmark rate for the eighth time in three months as officials rush to stimulate a weak economy
  • The country lost 28,500 private-sector jobs in December, the worst monthly drop in four years
• Chile’s economic activity rose at the fastest pace in four months amid increases from retail to manufacturing
  • Inflation accelerated more than all analysts expected in February, challenging bets that the central bank will cut its key interest rate this month to stimulate an economy damaged by protests and a global downturn.

• Colombia’s central bank is wheeling out a new communications policy: it’s going to talk much less

  • Country reported a $3.5 billion current-account deficit in the fourth quarter, in line with expectations
• Ecuador’s sovereign bonds plunged to a record on concern the International Monetary Fund will delay disbursement of the next tranche of a $4.2 billion loan
• Paraguay could take advantage of low interest rates to refinance some of its global bonds this year if congress approves debt management legislation to be submitted this month, Finance Minister Benigno Lopez said

--With assistance from Colleen Goko and Selcuk Gokoluk.

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, Karl Lester M. Yap

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With assistance from Bloomberg