Trump’s Comments on China Deal Boost Risk Appetite in Emerging Markets

(Bloomberg) -- Emerging-market stocks fell and currencies were little changed last week as a rebound in coronavirus infections halted progress on reopening the U.S. economy. Developing-nation assets had gained early in the week amid progress in U.S.-China trade talks, but the gains were erased as Texas, Florida, California and other states reported a surge in cases. Mexico and Philippines cut interest rates, while Turkey unexpectedly kept borrowing costs unchanged.

The following is a roundup of emerging-market news and highlights for the week through June 28:

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Highlights:

• Trump said the phase-one trade deal with China was “fully intact” after his adviser Peter Navarro spurred a temporary stock slump with comments interpreted as a decision to end the agreement
  • The Pentagon put Huawei Technologies and Hangzhou Hikvision Digital Technology on a list of 20 companies it says are owned or controlled by China’s military, opening them up to additional sanctions
  • The Senate approved a measure that would penalize banks doing business with Chinese officials involved in the national security law the country is seeking to impose on Hong Kong
  • The U.S. won arrest warrants for the former president of a China state-owned chipmaker and two other engineers charged with stealing secrets from Idaho-based Micron Technology
  • The European Union and China sparred over geopolitics and economics when the heads of the bloc’s main institutions held video conferences with the Chinese premier and president
• A resurgence in new virus infections slowed progress toward reopening the American economy, with the states of Texas and Florida halting drinking at bars
• IMF downgraded its outlook for the world economy, projecting a deeper recession and slower recovery than it anticipated two months ago
• The Trump administration is discussing another stimulus package with lawmakers that could be passed in July, Treasury Secretary Steven Mnuchin said
  • The Covid-19 pandemic is now predicted to kill 180,000 Americans by October
  • The U.S. is weighing new tariffs on $3.1 billion of exports from France, Germany, Spain and the U.K., adding to an arsenal the Trump administration is threatening to use against Europe
  • White House economic adviser Larry Kudlow said the U.S. economy will not shut down again, even as the surge in coronavirus cases threatens raise the death toll
• Kim Jong Un ordered the suspension of military actions against South Korea, a move that could ease tensions after North Korea blew up a liaison office built by Seoul
• The European Central Bank will set up a precautionary facility to provide euros to central banks outside the currency area to help ease any liquidity stress
• Turkey’s central bank held off on cutting rates for the first time since Governor Murat Uysal took over in July, unexpectedly offering relief for markets amid a worsening inflation outlook
• The Philippine central bank cut its benchmark rate by 50 basis points to support an economy facing its worst crisis in decades
• Hungary’s central bank reversed some of the monetary tightening it imposed in April, looking to prop up the economy as it followed European neighbors with a surprise rate cut
• Mexico cut its benchmark rate to the lowest in almost four years to counter its worst economic crisis since the 1930s
• Egypt kept interest rates unchanged, preserving one of the world’s highest real yields as investor appetite for the country’s bonds recovers
• South African Finance Minister Tito Mboweni delivered a grim assessment of the nation’s finances in a special adjustment budget that forecast a deep recession and plunging tax revenue
• India is pushing Russia to speed up the delivery of a missile defense system as ties with China deteriorate following the worst military clash between the Asian nations in four decades

Asia:

• The profits of Chinese industrial enterprises rebounded in May for the first time since November 2019, signaling the economy is continuing to recover from the coronavirus shutdowns
• China’s shadow banking credit increased for the first time since 2017 as policy makers let up on a years-long crackdown to boost the economy, according to Moody’s Investors Service
  • Surging dollar bond defaults by Chinese companies highlight the increasing pressure the nation’s firms are facing as the economy slows

• Early South Korea export figures show shipment declines easing in June amid resilient semiconductor demand and more purchases from China

  • South Korean President Moon Jae-in urged North Korea to recommit to peace efforts, as the two rivals faced new tensions on the anniversary of start of the war that engulfed the peninsula 70 years ago
  • South Korea’s health authorities will limit the entry of foreigners from some countries where Covid-19 infections are rising through a temporary restriction on flights and visa issuances
• India’s border stand-off with China may disrupt the supply chains of U.S. companies based in the south Asian nation
  • India has amended rules for purchases by government departments, making it mandatory for suppliers to mention the country of origin in a move to push for local products and keep out Chinese manufacturers
  • The country plans to impose stringent quality control measures and higher tariffs on imports from China, people familiar said
  • India is considering opening up so-called “bilateral bubbles” -- tightly controlled international travel corridors -- with countries including the U.S., France, Germany and U.K., hours after President Trump’s administration threatened to restrict charter flights from the South Asian nation
• Indonesia’s government is calling on the central bank to share a greater burden in responding to the economic hit from the Covid-19 pandemic, Finance Minister Sri Mulyani Indrawati said
  • Bank Indonesia sees room to further cut rates as the central bank cares about issues beyond financial stability, according to Governor Perry Warjiyo. The rupiah is fundamentally undervalued, he said
  • The government will place more than $2 billion at state-owned banks at a lower interest rate to boost lending to industries ravaged by the coronavirus, expanding the scope of its fiscal stimulus
  • Asian Infrastructure Investment Bank approved $1 billion of loans to Indonesia as part of coordinated international effort to help governments deal with the pandemic
• S&P Global Ratings joined Fitch Ratings to lower Malaysia’s outlook to negative from stable, as the country unveils $69 billion of stimulus measures to shore up an economy battered by the pandemic’s impact
• Bank of Thailand held its benchmark rate at a record low to support an economy it now sees contracting more than 8% this year
  • Bank of Thailand’s monetary policy committee asked the central bank to assess the need for additional steps with respect to the baht
  • Thailand is set to extend its state of emergency for a third time to help manage the reopening of schools as well as high-risk businesses, following a decline in coronavirus infections
  • The country received no foreign tourist arrivals nor receipts for a second month, according to Tourism Ministry data

• Bangko Sentral ng Pilipinas Governor Benjamin Diokno says there’s too much liquidity in the financial system, a key consideration for the next move in monetary policy

  • The Philippines’ gross international reserves rose to a record $93.3 billion in May, according to the central bank
• Chinese fighter jets entered Taiwan’s air defense identification zone seven times in the past two weeks, prompting the island to scramble warplanes to warn them off. The outburst could augur a dramatic escalation if sustained
• Pakistan’s central bank cut its key policy rate in an unscheduled move, stepping up support for an economy that’s set to contract for the first time in almost 70 years

EMEA:

• Poland may need to begin raising rates from the current record low as early as next year, according to one central banker

  • President Trump said some U.S. troops in Germany would be restationed to Poland, repeating criticism of Berlin’s defense spending and praising Polish President Andrzej Duda, who faces an election on Sunday
• Hailing Russia’s success in controlling the coronavirus, President Vladimir Putin proposed new cash payments for families and the unemployed, along with a tax increase for the rich
• MSCI’s warning that it may strip Turkey of emerging-market status could lead to sizable stock outflows and reputational damage, though investors say the country has a chance to avoid such an outcome
• Hungary’s central bank, facing a sliding currency after a surprise rate cut, took the unusual step of providing precise guidance for borrowing costs. The monetary authority will probably cut its benchmark rate one more time in July, Deputy Governor Barnabas Virag said on public radio on Friday
• Oman’s sovereign rating was cut for a second time this year by Moody’s Investors Service as a lower crude price environment will likely slash the Gulf nation’s oil revenue. The sultanate’s bonds fell
• Saudi Arabia’s National Commercial Bank is exploring a deal to acquire rival Samba Financial Group in what could become the banking industry’s biggest deal this year, people familiar said
  • The kingdom said it will restrict the hajj pilgrimage to Mecca this year to a “very limited” number of Muslims to contain the spread of the coronavirus, a decision that will reverberate in an economy already reeling from low oil prices and a pandemic-related lockdown
  • Saudi Arabia came under a missile and drone attack from Iran-backed Yemen rebels that targeted the capital and other cities, as international efforts to end their five-year war have floundered
• Abu Dhabi sold a $10.1 billion stake in its natural-gas pipelines to a group of investors including Global Infrastructure Partners, Brookfield Asset Management and Singapore’s sovereign wealth fund, in the biggest infrastructure acquisition this year
• The IMF approved a $5.2 billion stand-by arrangement for Egypt, boosting the most populous Arab country’s ability to tackle economic challenges posed by the coronavirus

• Less than two months into Lebanon’s bail-out discussions with the IMF, talk is turning to the need for a Plan B

  • Lebanese officials announced more measures to stabilize the nation’s plunging local currency and rein in soaring food prices that have triggered nationwide protests
• Arab foreign ministers said a political solution to the Libyan crisis was the only way forward, opposing any foreign intervention in the country
• South Africa’s government bonds slumped after the finance minister pledged to turn to alternative sources of funding to plug the budget deficit
  • South Africa’s government urged the national airline’s creditors and labor groups to support a rescue plan that includes at least 26.7 billion rand ($1.6 billion) of state funding and thousands of job losses
  • The country’s inflation rate dropped to a decade-low in April, the first full month of a nationwide lockdown to limit the spread of the coronavirus that affected data collection

• Nigeria will continue to pursue exchange-rate convergence around what is offered in the investors and exporters window, the regulator said

  • The nation will not request a delay in debt-service payments this year from bilateral and commercial creditors, the largest economy yet to turn down a debt holiday offered to the world’s poorest nations
  • Nigerian banks have applied to the Central Bank of Nigeria for permission to restructure 33% of their loans due to the fallout from the coronavirus pandemic and a slump in oil prices, the regulator said
• Zimbabwe suspended most monetary transactions on mobile-phone platforms and halted trade on the local stock exchange in an effort to stabilize its currency

Latin America:

• Argentina reached an understanding with one group of creditors to restructure $65 billion in overseas debt, while major differences remain with another key group, Economy Minister Martin Guzman said

  • Guzman said earlier the government couldn’t commit to the legal terms proposed by one of the key creditor groups
  • Province of Mendoza, the third Argentine issuer to default this year, extended the deadline for its offer on overseas debt by 10 days to July 6
  • Argentina’s government is said to be committed to finding a way to play a role in the future of bankrupt soy exporter Vicentin SAIC
  • MSCI warned that Argentina may be removed from the emerging markets index if there is further deterioration in market accessibility
• Brazil’s Senate approved legislation to facilitate privatization of water and sewage treatment, potentially unlocking billions of dollars in private investment
  • Country may review a law that freezes government spending for two decades
  • Central bank cut its growth forecast for the second time this year as the virus takes its toll on the economy, but officials said they were getting close to the lower limit for the benchmark rate
  • President Jair Bolsonaro said he believes he’s already had the coronavirus
  • President also said he plans to revamp social programs, supplanting the landmark projects of past leftist administrations, and said he’ll extend emergency aid for informal workers for three more months

• Mexico’s IGAE economic indicator, a proxy for gross domestic product, fell by a record 19.9% in April from a year earlier

  • A powerful drug cartel is accused of trying to assassinate Mexico City’s security chief in a deadly ambush that marks a new escalation in the years-long war between the government and organized crime
  • Mexico is not the best place to invest your money right now, according to Washington’s top official in the country
  • Finance Minister Arturo Herrera has tested positive for Covid-19
  • Nation’s attempt to limit the growth of clean energy suffered its biggest blow yet when a judge suspended the new rules
• Chile will take money from its sovereign wealth funds to tackle the coronavirus pandemic rather than increasing planned debt sales this year
  • Government forecasts a 6.5% GDP contraction in 2020, while the Health Ministry is indicating that the outbreak may be easing
  • State-owned Codelco is halting copper processing at a major mine in one of the first pandemic-driven interruptions to output
• Colombia is expecting its widest-ever fiscal deficit this year after suspending its balanced budget act
  • The World Bank approved a $700 million loan to support Colombia’s response to the Covid-19 pandemic
• Uruguay doesn’t rule out tapping international capital markets again after it sold $2 billion in dollar and local currency bonds
  • The World Bank approved a $400 million loan to Uruguay to help fund its pandemic response and economic recovery

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