EM Review: Trade Deal Uncertainties Kept Risk Sentiment Sluggish

(Bloomberg) -- Emerging-market investors were buffeted once again by competing comments over progress in U.S.-China trade talks last week. By the end of the week one fact was clear though -- there was still no deal ahead of the looming Dec. 15 deadline on new tariffs -- and the MSCI Inc.’s gauge of currencies fell for a second week. There is now speculation that phase one of the agreement won’t be completed before the end of the year.

The following is a roundup of emerging-markets news and highlights for the week ending Nov. 24.

Read here our emerging-market weekly preview, and listen to our weekly podcast, here.

Highlights:

• Trade negotiators from the U.S. and China are making progress in key areas, even as concerns grow that efforts to nail down the first phase of a broader deal are stalling
  • Chinese President Xi Jinping said his nation wants to work toward a phase one trade agreement with the U.S. on the “basis of mutual respect and equality,“ his first comments on a partial deal
  • The near-deal between the U.S. and China that fell apart six months ago is now being used as the benchmark to decide how much tariffs should be rolled back in the initial phase of a broader trade agreement, people familiar with the talks said
  • U.S. President Donald Trump said in an interview they are “very close” to a deal although unsure if he wants it
  • CNBC reported that officials in Beijing were pessimistic about the chances of reaching a deal with the U.S. Reuters reported the first phase of a U.S.-China trade deal may not be completed before the end of the year
  • If a trade deal is difficult to find, it is likely the new U.S. tariffs that go into effect on Dec. 15 will be at least postponed, the South China Morning Post reported, citing unidentified people familiar with the talks
  • The U.S. Commerce Department has started approving some suppliers’ applications for licenses to do business with China’s Huawei Technologies Co., partially reopening access to one of the biggest buyers of U.S. technology
  • Trump, touring an Apple Inc. assembly plant in Texas, said he’s “looking at” exempting the iPhone maker from tariffs on goods imported from China
• Trump said he “protested” U.S. interest rates that he considers too high relative to other developed countries in a meeting on Monday with Federal Reserve Chairman Jerome Powell
  • Many participants saw downside risks to the economic outlook as elevated, “further underscoring the case for a rate cut at this meeting,” according to minutes of the Oct. 29-30 Federal Open Market Committee session released Wednesday in Washington
• China lowered the cost it charges on short-term open-market operations for the first time since October 2015, trimming the rate on its seven-day reverse repurchase agreements to 2.5% from 2.55%
  • China’s base rate for new corporate bank loans dropped in November, following a series of policy-rate cuts from the central bank aimed at easing liquidity concerns. The one-year loan prime rate was set at 4.15% versus 4.2% in October
• House Speaker Nancy Pelosi and Trade Representative Robert Lighthizer made progress but failed to seal a deal Thursday on the stalled U.S. Mexico Canada free trade agreement, increasing the likelihood the deal won’t get a vote in Congress this year
• U.S. envoy Gordon Sondland said Rudy Giuliani -- working at Trump’s direction -- demanded a quid pro quo from Ukraine by holding up a White House meeting unless the country’s leader announced investigations that would benefit Trump politically
  • Now that House Democrats have wrapped their last scheduled public hearing on Ukraine they have to decide whether to schedule more, or move to the next step toward impeaching Trump
• The U.S. Senate unanimously passed a bill aimed at supporting protesters in Hong Kong and warning China against a violent suppression of the demonstrations -- drawing a rebuke from Beijing. Pelosi sent Trump legislation supporting Hong Kong protesters, and the president is expected to sign the bill into law
  • Trump said he stands with Hong Kong, but also wants trade deal. He declined to say if he’ll sign Hong Kong bill amid trade talks
  • China denounced a Hong Kong court ruling that declared the government’s mask ban unconstitutional
  • Hong Kong residents handed an overwhelming victory to pro-democracy candidates in a vote for local district councils on Sunday

• The South African Reserve Bank left its repo rate unchanged at 6.50% even after the nation’s annual inflation rate dropped more than forecast to the lowest in almost nine years in October

  • After months of speculation and delays, South Africa named Andre de Ruyter as chief executive officer of its debt-crippled state power utility, surprising investors and angering a key union
  • S&P Global Ratings cut its outlook on the government’s foreign-currency rating of BB to negative, citing slow growth
• Saudi Aramco’s bankers are seeing sufficient early demand to pull off the state oil giant’s initial public offering just three days after launching the deal, people with knowledge of the matter said
  • Saudi Arabia’s central bank doubled leverage limits for retail investors looking to buy shares in Aramco, according to people familiar with the matter, part of an effort to boost local demand for what could be the world’s largest initial public offering
• A group of opposition legislators in Chile presented a so-called constitutional accusation against President Sebastian Pinera over alleged human rights violations committed by security forces during street marches and riots
• Investors added to emerging-market exchange-traded funds for a sixth week as positive developments in U.S.-China trade talks outweighed deteriorating geopolitical situations in Latin America

Asia:

• China will continue proactive fiscal and prudent monetary policy, Premier Li Keqiang said
  • The nation still has room to adjust its fiscal, monetary and real-estate policies if uncertainty over trade with the U.S. generates further downward pressure on the economy, central bank adviser Ma Jun said. China still has room for conventional monetary expansion, former central bank head Zhou Xiaochuan also said
• Military cost-sharing talks between the U.S. and South Korea broke down over Trump’s demands for a five-fold funding increase, raising new questions about the stability of one of America’s closest alliances
  • Bank of Korea Governor Lee Ju-yeol said society is changing at “a rapid and complicated pace” and central banks also face new challenges including managing monetary policy in a low-growth, low-inflation environment and structural changes following digital innovation
  • South Korea’s external debt maturing in 1 year or less fell to $133.8 billion at end-September from $140 billion at the end of June
  • Early trade figures for November show exports could be headed for their smallest monthly decline since April
• Trump urged North Korean leader Kim Jong Un to “act quickly” to get a nuclear deal done, suggesting the two leaders could meet again “soon”
• Thailand’s economy grew more slowly than expected in the third quarter and the government lowered its full-year forecast as the country deals with the impact of the U.S.-China trade war and a strong currency
  • The central bank may lower the 2019 economic growth forecast from 2.8% and it remains concerned about baht strength, Governor Veerathai Santiprabhob said
  • The Bank of Thailand’s Monetary Policy Committee remained concerned about baht appreciation against trading partner currencies, as heightened external uncertainties could cause the Thai economy to be more sensitive to greater currency appreciation, according to minutes released from its Nov. 6 meeting
  • Industry Minister Suriya Juangroongruangkit called on the BOT to do more to curb appreciation in the baht and said its strength has hurt auto exports and the local economy as a whole
  • The government will provide more economic stimulus if needed, Finance Minister Uttama Savanayana said. The government is considering measures to bolster the tourism and property sectors, part of its latest efforts to support the economy, Deputy Prime Minister Somkid Jatusripitak said
  • The Bank of Thailand is prepared to use monetary policy if economic growth disappoints, its Governor Veerathai Santiprabhob said. He also said “the key rate shouldn’t be negative, as it will create lots of structural problems”
• The Indian government has kept inflation low, fiscal spending disciplined, and current account deficit manageable to ensure macroeconomic stability, Finance Minister Nirmala Sitharaman said
  • India seized control of a second non-bank lender, stepping up efforts to contain the economic fallout from the nation’s shadow banking crisis
  • Thousands of citizens have been swept up in a campaign of mass arrests following a decision by Prime Minister Narendra Modi’s government to end seven decades of autonomy in Kashmir
• Indonesia’s central bank left its key interest rate unchanged at 5% while pumping more liquidity into the financial system to stimulate the economy. Banks’ reserve requirement ratio was cut by 50 basis points, the first such decision since June
  • Indonesia’s budget deficit was about 289.1t rupiah ($21 billion) as of October, equal to 1.8% of gross domestic product
• Malaysian Prime Minister Mahathir Mohamad’s ruling alliance received a setback from voters, losing a parliamentary seat to the main opposition coalition at a by-election for the first time
  • Consumer prices climbed 1.1% on year in October
  • Malaysia has asked banks to submit pitches to help with a potential Samurai bond sale
• The Philippines posted a balance of payments surplus of $163 million in October, wider than the $38 million surplus in September
  • Foreign reserves were revised up to $85.8 billion in October from $85.7 billion reported earlier
  • Central bank Governor Benjamin Diokno said he’s not in a rush to deliver another reduction in banks’ reserve requirements, adding he has until 2023 to fulfill his promise to bring the ratio to single digit
• Taiwan’s push for its companies to invest in advanced manufacturing at home after decades of focusing on China is helping off-set the effects of Beijing’s trade war with the U.S., the government said

EMEA:

• Hungary’s central bank left its monetary policy setup unchanged, ignoring a depreciation in the forint and a surge in core inflation in one of the European Union’s fastest-growing economies
• Romanians elected President Klaus Iohannis for a second term as he promised to end years of political chaos and bring normality to one of the European Union’s poorest member-states
• A unit of Gazprom PJSC plans to sell the remaining 3.59% of so-called quasi-treasury shares in the Russian gas producer on Thursday in a deal that could be valued at $3.3 billion
  • Russia’s state-owned giants are heeding President Vladimir Putin’s call to cut their reliance on the dollar, but they’ve shown little desire to pay for it. Now the central bank may step in to ease the burden
• The International Monetary Fund said talks over a new loan for Ukraine will continue after a mission from the lender left Kyiv without agreeing on a deal
  • Ukraine’s long-term foreign debt rating was affirmed by Moody’s at Caa1 and outlook was raised to positive from stable
• The mortgage unit of Poland’s largest lender PKO Bank Polski SA plans another green covered bond offering, following up on its inaugural transaction earlier this year
  • Poland’s prime minister won a vote of confidence in his cabinet after vowing to build a patriotic welfare state and win a “culture war” to defend traditional Catholic values
• President Recep Tayyip Erdogan said he told Trump during their White House meeting that Turkey wouldn’t halt its deployment of a Russian air-defense system, as he downplayed differences between the NATO allies over the deal
• Nigeria’s inflation rate rose to a 17-month high in October as food prices surged. Consumer prices rose 11.6% from a year earlier compared with 11.2% in September
• Zambia’s central bank raised its key interest rate for a second time this year, bucking a global easing trend, in a bid to support its currency and tame inflation
• Zimbabwe’s central bank halved its key interest rate to 35%, joining the finance ministry in efforts to revive an economy hobbled by years of mismanagement
• Lebanese protesters flocked to the capital Tuesday and forced parliament to postpone its session indefinitely after facing off with the army and anti-riot police, adding to a political storm in the country even as banks reopened after a week-long closure
  • The political crisis in Lebanon has sent yields on some of its dollar bonds into triple digits
• Morocco is targeting its lowest euro-borrowing costs ever as it returns to international debt markets for the first time in five years, taking advantage of robust investor demand for securities denominated in euro
  • The north African nation’s long-promised plans for an economic restructuring began to take shape as authorities outlined a plan to restructure and unload debt-laden state assets and appointed a growth czar

Latin America:

• Chile’s President Pinera said the government is listening to the demands of protesters, but won’t sink into a populism that would damage the economy
  • The government and opposition agreed on a package of measures to boost pensions for the poor and cut public transport fares for the elderly, part of efforts to quell a month of demonstrations
  • Analysts expect Chile’s economy to shrink this quarter, and they’re trying to figure out if that will stretch into 2020 -- turning it into a recession
  • GDP grew 3.3% on an annual basis in the third quarter, in line with expectations
  • Chile’s economic activity will face “significant” slumps in October and November, Finance Minister Ignacio Briones said
• Argentine President-elect Alberto Fernandez told International Monetary Fund chief Kristalina Georgieva that he has a plan to grow the economy and tackle the nation’s debt as he seeks to renegotiate a record $56 billion credit line with the lender
  • Country posted a trade surplus of $1.8 billion in October, while consumer confidence fell 5.5% in November
• Peru’s economic growth accelerated in the third quarter to its fastest pace this year, boosted by investment in new copper mines
  • Government offered to buy dollar- and local-currency bonds and said it will also issue new notes denominated in Peruvian soles
• Brazil traders have trimmed key rate cut bets as the outlook for growth improves and the local currency drops near to a record low
  • President Jair Bolsonaro said he’d like to see a stronger local currency against the U.S. dollar
  • Central bank president Roberto Campos Neto didn’t show concern over the currency level
  • Congress is likely to tackle everything from a byzantine tax system to a government spending cap before July, when local election campaigns redefine legislative priorities, according to Lower House Speaker Rodrigo Maia
  • The return of former President Luiz Inacio Lula da Silva to Brazil’s political spotlight is adding another layer of complexity to the government’s ambitious reform program, lawmakers say
• Brazil’s and Mexico’s annual inflation rates hovered near multi-year lows in mid-November, bolstering expectations for central banks in both countries to further reduce borrowing costs to support feeble demand
• The IMF’s board plans to vote on Mexico’s request to renew its flexible credit line, possibly for less than the current $74 billion, before it expires next week
  • S&P said there is no reason for an immediate Pemex downgrade and said that the oil company rating will only move if the sovereign does
• Colombia saw the largest protests in years with labor unions, students and indigenous groups leading a nationwide strike Thursday aimed at the deeply unpopular President Ivan Duque
• Ecuador’s bonds rallied after the government sent a bill to congress designed to narrow the budget deficit and satisfy requirements of a $4.2 billion agreement with the International Monetary Fund
• A 32-year-old senator from Bolivia’s majority socialist party should be the nation’s president, ousted leader Evo Morales said in an interview

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

To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at yteso1@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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