EM Review: U.S-China Trade Accord Halts Three-Week Stock Decline

(Bloomberg) -- Emerging-market stocks halted a three-week slide last week and currencies rose as the U.S. and China agreed on the outline of a partial trade accord. As part of the deal, China will significantly step up purchases of U.S. agricultural commodities, while the U.S. will delay a tariff increase due this week. President Donald Trump said the deal was the first phase of a broader agreement.

The following is a roundup of emerging-markets news and highlights for the week ending Oct. 13.

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

Highlights:

• The U.S. and China reached a partial agreement Friday that includes certain intellectual-property measures and concessions related to financial services and currency, Trump said
  • The world’s two biggest economies had resumed talks aimed at easing hostilities in their 18-month trade war on Thursday, with both sides signaling cautious optimism
  • While the limited agreement may resolve some short-term issues, several of the thorniest disputes remain outstanding; new U.S. levies on Chinese goods scheduled for December haven’t yet been called off
  • China’s trade practices have deteriorated and U.S. tariffs are forcing China to heed American grievances, U.S. Secretary of Commerce Wilbur Ross said
  • Read: U.S.-China Trade War Timeline: What’s Happened Since May 2019
• China is prepared to set a timetable for working out harder issues next year in trade talks with the U.S., Fox Business reported, citing the Chinese Commerce Ministry
• The Trump administration placed eight Chinese technology companies on a blacklist
  • The government is also slapping visa bans on Chinese officials linked to the mass detention of Muslims in Xinjiang province
  • The administration is moving ahead with discussions on possible restrictions on portfolio flows into China
• The White House said Trump and his administration won’t participate in the House impeachment inquiry in a scathing letter to Speaker Nancy Pelosi, calling the proceedings unconstitutional and invalid
• North Korea’s nuclear envoy Kim Myong Gil said that the U.S. had arrived “empty-handed” for the talks in Stockholm over the weekend
• Turkish troops began a major incursion into Syria late Wednesday, hours after President Recep Tayyip Erdogan formally announced the beginning of a military offensive into the northeastern part of the neighboring country
  • Trump gave his administration authority to impose new sanctions on Turkey but isn’t moving ahead with them yet, Treasury Secretary Steven Mnuchin said
  • Erdogan threatened to send millions of Syrian refugees settled in Turkey to Europe, as he bridled at criticism of his military offensive against Kurdish fighters
• Investors are losing faith in exchange-traded funds that target emerging markets. After yanking another $768 million from U.S.-listed stock and bond funds in the week through Oct. 4, this year’s net inflows now stand at just $85 million -- a fraction of the $18 billion as of March

Asia:

• The World Bank cut its developing East Asia and Pacific 2020 GDP forecast to 5.7% from 6% in its latest World Bank East Asia and Pacific Economic update
  • The World Bank trimmed India’s economic growth forecast by the most among South Asian nations. India’s gross domestic product growth is projected at 6% in the fiscal year started on April 1, compared with 7.5% forecast in April and 6.8% recorded a year earlier
• China’s hidden capital flight surged to a record high in the first half of this year, suggesting that residents wanting to move money abroad are using unrecorded transactions to evade tight capital controls
• Bank of Korea said it will use monetary policy to support an economic recovery as growth slows and inflation pressures weaken more than expected
  • Bank of Korea Governor Lee Ju-yeol is sounding less optimistic about the economy
  • The central government’s debt rose 5.7 trillion won ($4.8 billion) to 697.9 trillion won as of end-August from July, according to a statement from the finance ministry
  • Twenty North Korean fishermen were tipped into the sea after their boat collided with a Japanese Fisheries Agency vessel in waters off Japan’s west coast, public broadcaster NHK said. All 60 North Koreans on a boat suspected of illegally fishing in Japanese waters have been rescued, the Coast Guard said Tuesday
• Indonesia’s foreign reserves declined in September for the first time in four months to $124.3 billion
  • Singapore Prime Minister Lee Hsien Loong and Indonesian President Joko Widodo agreed that the Monetary Authority of Singapore and Bank Indonesia would work to renew for another year their bilateral financial arrangement to support monetary and financial stability, which expires Nov. 4
  • Indonesia’s Security Minister Wiranto was attacked by a knife-wielding man with suspected links to the Islamic State terrorist group, the police said

• Thailand will relax capital-flow rules to make it easier to move money abroad, the central bank governor said

  • The central bank’s monetary policy committee remains concerned about the baht’s appreciation, according to the minutes of Sept. 25 meeting
  • The Bank of Thailand has limited scope to tackle the baht’s strength, which is a sign of investor confidence in the country’s economic fundamentals, according to the World Bank
  • The central bank wants to preserve policy room amid rising risks and will use it when it’s really necessary, Deputy Governor Mathee Supapongse said
  • International Monetary Fund expects Thailand’s economic growth to slow to 2.9% in 2019 and 3.0% in 2020 from preliminary 4.1% growth in 2018
• Malaysia is asking the brother of ex-premier Najib Razak and former cabinet ministers to return funds believed to have come from 1MDB or risk being prosecuted
  • Nation is widening its deficit target for 2020 to 3.2% of GDP from 3% previously
• Taiwan’s exports unexpectedly decreased in September, down 4.6% year-on-year compared with median analyst estimate for a 0.8% gain
• The Philippines central bank has probably finished cutting its key interest rate this year, but could still ease monetary policy by lowering the amount of funds banks must hold in reserve, Governor Benjamin Diokno said
  • The nation posted a trade deficit in August of $2.4 billion, compared with the $3.6 billion median estimate of analysts and a shortfall of $3.4 billion the previous month

EMEA:

• Africa could be home to 90% of the world’s poor by 2030 as governments across the continent have little fiscal space to invest in poverty-reduction programs and economic growth remains sluggish, the World Bank said
  • The bank cut its growth forecast for South Africa in 2019 to 0.8%, from a 1.1% estimate in June
• South African business confidence increased from the lowest level in more than three decades in September and may continue to rise if the nation’s upcoming medium-term budget sets the stage for an economic recovery
  • The nation’s foreign-exchange reserves surged to the highest level in almost four decades in September following the government’s biggest Eurobond issuance yet. Gross reserves rose to $54.86 billion from $49.95 billion in August
  • The National Treasury published proposed conditions for funds to bail out Eskom Holdings SOC Ltd., including that it publish separate financial statements for its generation, distribution and transmission units
• Nigerian President Muhammadu Buhari has raised the country’s revenue goals for next year even after repeatedly missing past targets by a wide margin
• An elite Mozambican police unit was implicated in the assassination of a key observer in a ruling party stronghold as the country prepares for general elections on Oct. 15
• Egypt’s annual inflation rate in urban areas fell to its lowest in almost seven years, offering a fresh incentive to investors in local debt looking to maximize returns that are already among the highest in the world
• Russia’s ruble will erase nearly all of this year’s gains in the next three months as a strengthening dollar batters emerging-market currencies, according to the most accurate forecaster
• Poland’s ruling nationalists are headed for another four years in power, winning Sunday’s election on a vow to build a modern welfare state and complete a drive to impose their ideology on all walks of life
  • Polish lenders have threatened to fight back and sue their clients if local courts start annulling mortgage loan agreements after the European Union’s top court dealt a blow to the country’s financial industry
• Hungarian Prime Minister Viktor Orban’s party lost control of Budapest and four of the country’s biggest cities, in a major rebuke to his rule after a video of one of his allies at an orgy handed a last-minute gift to a galvanized opposition
• Romania is facing the prospect of losing a third prime minister in as many years. The Social Democrat government is on the brink of collapse after its opponents filed a no-confidence motion
• Lebanese officials were in the United Arab Emirates seeking financial support to help keep the country afloat as it seeks to take painful austerity measures to restore investor confidence
• Israel’s central bank signaled interest rates could fall below zero to help steer the economy through a global trade war and boost sluggish inflation. The shekel extended losses
• Singapore’s Temasek Holdings Pte has decided against investing in Saudi Aramco’s initial public offering, in part over environmental concerns, according to people familiar with the matter
• Iran said missiles struck one of its tankers in the Red Sea, the latest in a series of attacks on oil infrastructure in the region that have roiled energy markets

Latin America:

• Ecuador’s government is offering to increase welfare payments in talks with unions and indigenous groups aimed at ending the violent protests roiling the nation
  • The government returned to the capital after moving to the port city of Guayaquil amid mass unrest triggered by a decision to end fuel subsidies
  • Bonds tumbled after government decided to move, before partially recovering losses
• Brazil’s consumer prices unexpectedly fell in September as food and beverage costs tumbled for the second straight month, solidifying wagers the central bank will extend key interest rate cuts
  • Retail sales rose less than analysts forecast in August in a fresh sign that consumer demand is responding slowly to record-low borrowing costs
  • The U.S. government has declined to endorse Brazil’s bid to join the Organization for Economic Cooperation and Development, marking a reversal after months of public support from top officials
  • Brazil is about to sell a series of exploration licenses in the Atlantic Ocean that comprise more oil than the entire reserves of Norway
  • Lower house floor approved the system for sharing out the funds from the oil auctions among states and municipalities
• Mexico’s inflation rate fell to the central bank’s target for the first time since 2016 as a slowing economy and somewhat stable peso have led economists to forecast more interest rate cuts
  • Two members of the central bank voted for a 50bp rate cut, according to the minutes of the last meeting
  • A group of House Democrats said U.S. approval of the stalled USMCA agreement hinges on Mexico’s full implementation of a new labor law
• Argentine presidential candidate Alberto Fernandez said he wants to reprofile the nation’s debt, mirroring what Uruguay did in 2003
  • Fernandez also said that if elected, his government would abandon the Lima Group of nations that meets to demand fresh presidential elections in Venezuela
  • Government will transfer funds to compensate provincial pension funds, even if provinces haven’t provided the required information
• Chile’s inflation unexpectedly slowed in September on the back of falling transportation and household goods prices, paving the way for another interest rate cut this month
  • Economists see policy makers cutting the monetary policy rate by 25bps in its October meeting, according latest analyst survey released by the central bank
• Venezuelan opposition lawmakers proposed changes to the hydrocarbon law, allowing for international companies to control oil and products trading

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

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, Alex Nicholson

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