Trade Talk Optimism Lures Emerging-Market Bulls Back

(Bloomberg) -- Emerging-market stocks and currencies halted a two-week decline last week as mounting optimism over U.S.-China trade talks was crowned late Friday by an agreement on currency policy.

The following is a roundup of emerging-markets news and highlights in the past week.

Asset Moves Weekly
MSCI EM stocks index+2.7%
MSCI EM FX index+0.6%
Bloomberg Barclays Global EM Local Currency bond index +0.5%

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Highlights:

  • U.S. President Donald Trump said he’ll extend a deadline to raise tariffs on Chinese goods beyond this week, citing “substantial progress” in the latest round of trade talks that wrapped up Sunday in Washington
    • The two sides agreed on a currency provision, Treasury Secretary Steven Mnuchin said. Bloomberg News reported earlier in the week that the U.S. was asking China to keep the value of the yuan stable
    • But they haven’t agreed on the critical issue of enforcement, four people familiar with the matter said
    • China is proposing to buy an additional $30 billion a year of U.S. agricultural products including soybeans, corn and wheat as part of the trade deal, according to people with knowledge of the matter
    • Chinese officials are hindering imports of Australian coal, with at least one major port suspending customs clearance, but have so far stopped short of an official ban, according to people with knowledge of the situation
  • Federal Reserve officials widely favored ending the runoff of the central bank’s balance sheet this year while expressing uncertainty over further rate hikes this year, minutes of their January meeting showed
  • Trump said he is in “no rush whatsoever” to conclude a nuclear deal with North Korean leader Kim Jong Un ahead of a summit scheduled for Feb. 27-28 in Hanoi
  • India, China and a number of other countries are pushing back against U.S.-led efforts to reassess WTO rules that allow developing countries to claim certain benefits
  • Brazil’s President Jair Bolsonaro presented Congress with a much-anticipated pension proposal that aims to save 1.2 trillion reais ($319 billion) in 10 years by introducing minimum retirement ages, among other measures
  • Oman plans to slash its borrowing requirements for 2019 by as much as 70 percent and rely on asset sales to plug one of the largest budget deficits among oil exporters
  • South Africa announced a 69 billion rand ($4.9 billion) bailout for the state-owned electricity company Eskom Holdings SOC Ltd.
  • Hungary was upgraded by Fitch Ratings to BBB, the second-lowest investment grade score
  • The 60-year-old governor of the Philippine central bank, Nestor Espenilla, died Feb. 23 after a battle with cancer

Asia:

  • The People’s Bank of China signaled that it will use further targeted cuts to the amount of funds that banks must hold in reserve, as policy makers seek to guide liquidity to needy parts of the economy, according to a quarterly policy report
    • The PBOC announced the first of a new kind of market operation which aims to encourage financial institutions to issue perpetual bonds to boost their capital
  • Abu Dhabi Crown Prince Mohammed Bin Zayed Al Nahyan will hold a summit with South Korean President Moon Jae-in on Feb. 27, the South Korean presidential office said
    • Moon said he expects a “big” advance in denuclearization talks during the next summit between leaders of the U.S. and North Korea
  • The United Nations Secretary General may ask India to refrain from escalating tensions and enter into dialogue with Pakistan and the Kashmiris, Pakistani Foreign Minister Shah Mahmood Qureshi said
    • India raised duties on all goods imported from Pakistan after withdrawing the neighboring country’s most-favored nation status following a terror attack
    • The nation announced projects that will stop its share of water from the Indus river basin from flowing into Pakistan
    • Prime Minister Narendra Modi’s Bharatiya Janata Party and the Shiv Sena have entered into a seat-sharing agreement, said Devendra Fadnavis, chief minister of Maharashtra
    • The Reserve Bank of India reprimanded Yes Bank for selectively revealing a “confidential” report by the regulator
    • FDI equity inflows during the first nine months of the 2018-2019 financial year were 7 percent lower in dollar terms from a year earlier
  • Pakistan’s Prime Minister Imran Khan said his nation would retaliate if attacked by India, following New Delhi’s strongest accusations yet that its nuclear-armed neighbor was responsible for the terrorist attack in Kashmir
  • The baht reached its strongest level since October 2013; Thailand’s economy grew at a faster pace in the fourth quarter than the previous three months
    • The Bank of Thailand flagged the possibility of another rate hike in its minutes
    • The country posted the widest trade deficit since 2013 in January
  • Bank Indonesia left its policy rate unchanged at 6 percent as predicted and dropped some of its previous more hawkish comments
    • The central bank is weighing the use of sukuk issued by other countries in its monetary operations
  • Malaysians is gearing up for a long battle with the European Union on concern the bloc will eventually ban palm oil
    • The economy swung into deflation in January for the first time since the aftermath of the global financial crisis in 2009 as fuel prices dropped
  • The Philippine central bank must avoid swiftly adding money into the financial system and cutting interest rates, while inflation remains above target, Deputy Governor Diwa Guinigundo said
    • Central bank remains “more on the hawkish side” on monetary policy
    • Finance Secretary Carlos Dominguez said he’s “very confident” the government will keep its budget deficit under control this year 
  • Taiwan’s giant life insurers have been putting more of their cash into higher-yielding foreign assets in recent years

EMEA:

  • South Africa is planning to tap international markets for as much as $2 billion by the end of next month
    • January’s inflation rate eased to the lowest level since March
  • Russia’s central bank is attempting to resolve a dispute between shareholders at a bank that has landed one of the country’s top foreign investors in jail. Michael Calvey, the American founder of Baring Vostok Capital Partners, faces charges related to fraud at Vostochny Express Bank
  • The lira underperformed its peers; Turkey’s central bank changed its reserve rules to boost credit growth amid signs of a deepening economic slowdown
    • President Recep Tayyip Erdogan said Trump invited him to the U.S., where he might plan a trip following March 31 municipal elections, according to televised remarks carried by state news agency Anadolu
  • Poland’s Adam Glapinski said that rates could theoretically go down for the first time since he became central bank governor
  • Egypt raised $4 billion from the dollar debt market in the strongest signal yet that investor interest has returned
  • Nigeria’s general elections were marred by the late opening of many polling stations and sporadic violence in a tight race for the presidency between incumbent Muhammadu Buhari and multimillionaire Atiku Abubakar
    • The parties of Buhari and his main challenger, Abubakar, claimed early successes
    • Buhari said the nation’s election commission was incompetent after a vote scheduled earlier this month was postponed just several hours before polling was due to start
  • Zimbabwe began formal trading of what’s effectively a new currency as it tries to ease a shortage of dollars that’s crushed the economy
  • Zambia’s central bank held its key interest rate at a five-year low as pressure on foreign reserves persists

Latin America:

  • Within hours of Bolsonaro presenting Brazil’s long-awaited pension reform, markets began to dip lower as attention pivoted to what is set to be a long debate in Congress
    • Inflation accelerated less than expected in mid-February
  • The Argentine peso extended its February decline as the central bank struggled to cope with higher inflation expectations
    • The central bank is said to be looking to further increase its absorption of pesos in the economy, seeking to reduce volatility in the foreign-exchange market
  • Mexico’s central bank took the unprecedented step of correcting its meeting minutes after the accidental inclusion of a phrase in the English version that could have made analysts think the board would entertain an interest-rate cut
  • Peru’s economic growth gained traction in the fourth quarter, even as copper exports slowed down due to U.S.-China trade tension
    • Trucking companies in Lima and northern Peru began a strike over rising fuel prices, taxes and road tolls
  • Ecuador’s sovereign bonds rallied after the government secured a $4.2 billion loan package from the International Monetary Fund as the government tries to curb spending and revive sluggish growth
  • Venezuelan soldiers killed two members of the indigenous Pemon community who were trying to stop a convoy blocking humanitarian aid from crossing the border with Brazil
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