Trump's China Deal Talk Fuels Emerging-Market Rebound

(Bloomberg) -- Emerging-market assets rallied, with a gauge of equities completing its best week since 2016 amid growing hopes for improvement in the U.S.-China trade relations and optimism for additional stimulus by the Asian nation.

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Highlights for the week ended Nov. 2:

• President Donald Trump said he thinks U.S. will reach a trade deal with China; Trump is scheduled to meet Chinese President Xi Jinping at the G-20 summit in Argentina later this month
  • The U.S. is preparing to announce by early December tariffs on all remaining Chinese imports if talks fail to ease the tension, three people familiar with the matter said earlier in the week
• The Shanghai Composite Index had its second weekly advance as China’s leadership signaled that further stimulus measures are being planned after disappointing economic data showed a piecemeal approach isn’t working; economists expect the government to rely more on fiscal stimulus
• A gauge of China’s manufacturing dropped to the lowest in more than two years in October, swelling concern trade friction is hurting its economy; manufacturing gauges for some of Asia’s most export-driven economies such as Taiwan, Malaysia and Thailand, slipped into negative territory in October
• Turkey’s Minister of Justice Abdulhamit Gul and Minister of Interior Suleyman Soylu, who had been sanctioned for their roles in organizations responsible for the arrest and detention of Pastor Andrew Brunson, were removed from the U.S. Treasury Department’s sanctions list
• The U.S. is raising pressure on Saudi Arabia to wind down its political and economic isolation of Qatar as well as to end the war in Yemen and start talks as the kingdom finds itself under scrutiny over the killing of columnist Jamal Khashoggi
• Mexico’s peso was the worst-performing EM currency after a decision to scrap a $13 billion project to build a new international airport; Fitch cut the country’s outlook to negative, citing policy uncertainty
• Ibovespa Index was among the top performers after Jair Bolsonaro swept to power in Brazil’s presidential election
• Malaysia’s government will push its budget deficit to the highest in five years and seek to draw more income from the state oil company to help plug the shortfall

Asia:

• The Chinese yuan rose both onshore and offshore; China is considering a tax cut to revive its flagging automotive market, according to people familiar with the matter
  • The yuan exchange rate is likely to remain stable despite the short-term impact of external factors on China’s forex supply and demand, China Securities Journal said in a commentary
  • A Chinese state-owned company was charged with conspiring to steal trade secrets of U.S. chipmaker Micron Technology Inc.
• South Korea’s won was Asia’s best performer; exports and inflation data support rate-hike expectations; overseas shipments climbed more than expected in October, while consumer prices rose 2 percent on year during the same month
  • A single rate increase doesn’t mean the Bank of Korea will start monetary tightening; rather it indicates the central bank is heading into normalization, Governor Lee Ju-yeol said
• India’s S&P BSE Sensex Index had its biggest weekly gain in more than two years; government sought to defuse growing tensions with the central bank, saying it respects the institution’s autonomy
  • A top ally of Indian Prime Minister Narendra Modi, who was key in a campaign to oust a former central bank chief, has come out in support of Governor Urjit Patel in his current dispute with the government
  • READ: Why India’s Government and Central Bank Are Feuding: QuickTake
  • India is examining options including an outright sale of Infrastructure Leasing & Financial Services, a person with knowledge of the matter said
• The Thai baht strengthened; the current-account surplus grew more than forecast to $2.37 billion in September from $753 million excess in August,
  • Finance Ministry keeps 2018 GDP growth estimate at 4.5 percent and predicts Bank of Thailand policy rate to remain at 1.5 percent this year
  • A manufacturing production index fell 2.6 percent in September from a year earlier, compared with forecast for a 0.5 percent drop
• Bank Indonesia introduced domestic NDF as part of efforts to stabilize the currency and expand FX hedging means; Indonesia’s rupiah rallied the most since July 2016
  • President Joko Widodo won the backing of lawmakers for his 2019 budget proposals that seek to slash the fiscal deficit and boost spending
  • Inflation quickened to an annual pace of 3.16 percent in October from 2.88 percent in September; central bank will remain focused on maintaining rupiah stability, Governor Perry Warjiyo said
• Taiwan’s economy expanded 2.3 percent on year in third quarter, compared with 2.36 percent expansion forecast in August by the statistics bureau
• Bangko Sentral ng Pilipinas expects consumer prices to rise within 6.2 percent to 7 percent on year in October, its department of economic research said
• Malaysia is considering offering a global bond for the first time in two years

EMEA:

• Turkish lira strengthened for a fourth week; Turkey announced tax cuts on white goods, commercial vehicles and certain cuts. The lira weakened due to concern the government may follow policies to stimulate growth at the expense of higher inflation and worsening state finances
  • Central bank raised year-end inflation estimate to 23.5 percent, 10 percentage points higher than its forecast three months ago
  • Turkey’s benchmark Borsa Istanbul 100 Index resumed gains; announcement of tax cuts for the rest of the year for autos, white goods, furniture and real estate boosted those sectors
• Moody’s Investors Service said it might upgrade Russia’s credit rating to investment grade even as the U.S. is likely to sanction Russian sovereign debt; ruble ended the week lower
  • Russia’s MOEX index snapped four weeks of losses; Sberbank was the biggest contributor as Russia’s biggest lender posted analyst-beating earnings. The bank said its net-interest margin improved as retail lending proved “highly profitable”
• South Africa’s Reserve Bank said it sees higher interest rates in the next two years to help contain accelerating inflation; nation recorded a deficit on its trade balance in September as imports of mineral products, which include oil, surged; the rand ended the week stronger
  • South Africa’s FTSE/JSE Africa All Shares Index rallied, snapping five weeks of declines. Naspers led the recovery as it survived a potential cull from MSCI indexes and as its 31%-owned Tencent posted a rousing recovery in Hong Kong
• Kenya will offer Eurobonds and seek a syndicated loan to raise 287 billion shillings ($2.83 billion) net external financing it planned this year, a Treasury official said
• Czech National Bank boosted the repo rate to 1.75 percent from 1.50 percent, in line with expectations. The central bank increased 4Q 2019 CPI forecast to 2.2 percent from 2 percent and raised 1Q 2020 to 2.1 percent from 2 percent
• Poland unveiled borrowing plans for November. After placing 18 billion zloty of new debt at two regular bond auctions, the Finance Ministry plans to offer up to 6 billion zloty in a single sale in November
• The International Monetary Fund said the Egyptian central bank’s commitment to a flexible exchange rate policy will help protect foreign reserves and offset outside shocks, as the lender cleared the way for the next installment of a $12 billion loan

Latin America:

• Argentina’s peso was the best performer, strengthening past its 50-day moving average for the first time since December; Merval equity index advanced for a second week
  • The IMF’s forecast for a 1.6 percent contraction next year is overly pessimistic, government officials told investors in several meetings in New York, according to people with direct knowledge of the matter
• Mexico’s benchmark IPC stock index retreated for a fifth week as the top lawyer for President-elect Andres Manuel Lopez Obrador said Mexico City airport bonds are safe from default; Lopez Obrador’s 2019 budget proposal will include money to cancel Texcoco airport project, according to his pick for Finance Minister Carlos Urza
  • Trump said Mexican troops "unable or unwilling" to stop migrants, adding that he may send more U.S. troops to border
  • Mexico’s economy rebounded more than expected in the third quarter amid a pickup in services activity, growing 0.9 percent from previous quarter in seasonally adjusted terms
  • Mexico’s swap rates jumped higher across the curve; market now fully prices in a 25bps Banxico hike in November, about 45bps hikes in three months and a total of 55bps rate increases in six months
• Brazil’s real was among laggards, halting a four-week winning streak; Jair Bolsonaro aims to secure congressional approval of at least some aspect of pension reform this year, the president-elect said
  • Industrial production declined more than expected in September, falling 1.8 percent on month
  • Bolsonaro’s would-be finance minister, Paulo Guedes, has agreed with president-elect that the project that makes the central bank independent will be a priority, O Globo reports; Guedes wants Ilan Goldfajn to remain in charge of the central bank for another two years in the new government
  • Onyx Lorenzoni, Bolsonaro’s likely chief of staff, is said to plan to propose pension reform similar to the one in Chile

Upcoming data:

--With assistance from Divya Balji, John Viljoen, Selcuk Gokoluk, Netty Ismail, Colleen Goko and Lilian Karunungan.

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;George Lei in New York at glei3@bloomberg.net;Alex Nicholson in Moscow at anicholson6@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Alec D.B. McCabe

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