The Most Important News in Emerging Markets This Week

(Bloomberg) -- Emerging-market stocks and currencies strengthened last week as investors turned more optimistic about the U.K. avoiding a no-deal Brexit, a truce in the U.S. and China’s trade war and Turkey avoiding tougher American sanctions over Syria. MSCI’s currencies index rose to its highest in almost three months and a gauge of stocks rose for a second week.

The following is a roundup of emerging-markets news and highlights for the week ending Oct. 20.

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

Highlights:

• Beijing wants a rollback in tariffs in its trade war with the U.S. before China can feasibly agree to buy as much as $50 billion of American agriculture products that President Donald Trump claims are part of an initial deal, people familiar with the matter said
  • China wants to hold more talks this month to hammer out the details of the “phase one” trade deal touted by Trump before Xi Jinping agrees to sign it, according to people familiar with the matter
  • China hopes it can make progress with the U.S. in removing tariffs, Ministry of Commerce spokesman Gao Feng said. Chinese officials are working on the text of the trade agreement in close contact with U.S. negotiators, Gao said
  • Trump said a trade deal with China probably won’t be signed until he meets with Xi at the APEC summit next month in Chile
• Turkey agreed to a temporary pause of military operations in Syria that could be extended if Kurdish fighters formerly allied with America leave the border region, U.S. Vice President Mike Pence announced after a hastily arranged visit to Ankara
  • “Immediate” cease-fire to last 120 hours; Pence said Kurds previously aligned with the U.S. provided assurances that they’ll make a “safe and orderly withdrawal”
  • Conflicting interpretations of deal point to fragility of pact, which is already being tested with reports of continuing skirmishes between Turkish forces and Syria’s Kurdish YPG militia, part of an autonomous administration in the northeast
  • Earlier, Turkish regulators moved to limit the impact on financial markets after the U.S. targeted a leading bank in what amounted to a reprimand of President Recep Tayyip Erdogan’s military incursion in Syria
  • Government measures, including a ban on short-selling of seven banks and a renewed liquidity squeeze in offshore money markets, stemmed a rout in financial institutions and buoyed the lira

• Saudi Aramco ’s stop-start initial public offering was delayed again just days before a planned launch as doubts re-emerged about the $2 trillion valuation placed on the state oil giant by Crown Prince Mohammed bin Salman

  • IPO had been set to begin just as Saudi stocks slipped into bear market territory
• The U.S. House gave support to pro-democracy protesters in Hong Kong by passing a bill that would require an annual review of whether the city is sufficiently autonomous from Beijing to justify its special trading status under U.S. law
  • China threatened to retaliate if the Congress enacts legislation
  • Hong Kong’s legislature was interrupted for a second day as pro-democracy lawmakers shouted down Chief Executive Carrie Lam; previous day, protests forced her to deliver annual policy address by video
  • Hong Kong protesters unleashed another wave of destruction on the city, setting fires and wrecking shops in a pattern of violence that has taken root after 20 weeks of demonstrations
• The U.S. State Department’s new requirement that China give official notice before its diplomats visit universities and research institutions or meet with local government officials violates the Vienna Convention governing relations between countries, according to the Chinese embassy in America

• China continued its grind to more moderate growth in the third quarter as investment slowed. Gross domestic product rose 6% in the July-September period from a year ago, the slowest pace since the early 1990s

  • China is buying less from the rest of the world, pushing its trade surplus higher and dragging on global economic growth
  • The nation’s factory deflation deepened in September
• The Bank of Korea cut its policy rate for the second time this year in a widely expected move to tackle weakness in economic growth and prices, trimming the key rate to 1.25% from 1.5%. The central bank warned that economic growth would be weaker than forecast
• Boris Johnson will make a fresh attempt to deliver on his pledge to take Britain out of the European Union on Oct. 31 as optimism grows that he now has enough support to get his deal through Parliament

Asia:

• China will allow foreign investors to transfer funds and bond holdings between their QFII or RQFII and interbank accounts from Nov. 15, according to State Administration of Foreign Exchange
  • The nation caught traders off-guard with a surprise injection into the financial system via loans to banks. The People’s Bank of China added 200 billion yuan ($28 billion) of one-year cash through the medium-term lending facility on Wednesday
• Treasury Secretary Steven Mnuchin told South Korean Finance Minister Hong Nam-ki that he would consider South Korea’s position regarding its request for auto tariff exemption
  • The approval rating for President Moon Jae-in hit a record low in a poll released just days after he issued a public apology for the resignation of a scandal-tainted minister who was a close political ally. The support rate for Moon’s government was at 39%
• India’s retail inflation accelerated to the highest in more than a year, possibly posing a challenge to the central bank’s aim of maintaining an easy monetary policy
  • Monetary Policy Committee was unanimous in its view that a deepening economic slowdown is worrying enough to keep interest rates low for longer, the minutes of its latest meeting show.
  • The trade deficit narrowed to the lowest in seven months in September as a deepening economic downturn sapped demand for imports

• Indonesian President Joko Widodo was sworn in for a second and final five-year term in office on Sunday and is due to unveil his cabinet on Monday

  • The economy is set to expand 5.1% this year as domestic factors help counter the impact of the U.S.-China trade war on the nation’s exports and imports, according to Coordinating Minister for Economic Affairs Darmin Nasution
  • Bank Indonesia Deputy Governor Dody Budi Waluyo said the central bank’s able to accommodate another reduction in interest rates as long as it’s able to maintain its target set earlier in the year
  • The nation posted a surprise trade deficit in September
  • Indonesia plans 0% import tariff for certain yarn from India
• Malaysia’s finance minister said the government won’t raise taxes unnecessarily even as the trade war between two of its largest trading partners hampers the state’s goal of achieving a balanced budget
  • The government is serious in tackling the issue of the shadow economy, estimated at 21% of gross domestic product in size, Finance Minister Lim Guan Eng said
• The Philippine central bank is probably done cutting its key interest rate this year, but remains open to further reducing the ratio of funds lenders must hold in reserve, Governor Benjamin Diokno said
  • The central bank said it would cut the reserve ratio for banks’ bonds to 3% effective Nov. 1
  • The country’s economy will probably expand around 6% in 2019 as the government ramps up spending after a slower growth rate in the first half, Finance Secretary Carlos Dominguez said
  • Lending to the Philippines is likely to climb to a record as the Philippine government ramps up spending on infrastructure and social welfare, the Asian Development Bank said
• Thailand’s Prime Minister Prayuth Chan-Ocha said he expects 2020 economic growth of 3%-4% and said a recovery in exports and easing trade tensions are expected to bolster the economy next year
• Taiwan’s government agencies plan measures to help machine tool industry withstand the impact of the U.S.-China trade war, including accelerating replacements of old equipment, according to the Ministry of Economic Affairs

EMEA:

• Russia is loosening the financial reins a bit after years of austerity, raising hopes growth could soon pick up even as the global outlook dims
• Foreigners have invested more than $40 billion in emerging-market local-currency debt so far this year, with the biggest flows going to Brazil and Russia, according to the Institute for International Finance
• Poland’s ruling nationalists clinched another four years in power to build a modern welfare state and complete a drive to impose their conservative ideology on all walks of life
• 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
• South Africa’s cash-strapped state power company, Eskom, imposed a second day of controlled blackouts, jeopardizing a recovery in the continent’s most-industrialized economy as investors await a government plan to restructure the utility
• Kenya’s lawmakers approved the government’s plan to present the debt limit in absolute figures and not as a percentage of gross domestic product
  • The National Treasury proposed a ceiling of 9 trillion shillings ($87 billion), which allows it to increase borrowing to almost match the size of the entire economy, and would be about double the previous cap of 50% of GDP, with the debt at net present value
• Mozambicans voted Tuesday, after a campaign marked by violence, insurgent attacks and fallout from a debt scandal; early results showed that the ruling Frelimo party was in the lead
• Egypt said the International Monetary Fund is interested in starting a new program with the Arab country to “preserve the success” achieved by its $12 billion loan agreement
• The IMF, which just lowered its 2019 global growth forecast for a fifth straight time, is turning far more downbeat on Saudi Arabia’s prospects, cutting its outlook for this year to just above zero

Latin America:

• Chilean President Sebastian Pinera on Saturday declared a state of emergency, his hand forced by violent protests in South America’s wealthiest country after an increase in transportation costs
• Ecuador reversed the fuel price increases that triggered almost two weeks of violent unrest and paralyzed large parts of the country. Leaders of the nation’s indigenous organizations called off further protests
  • IMF reaffirmed support to Ecuador after President Lenin Moreno was forced to reinstate fuel subsidies after 11 days of demonstrations
• Brazil President Jair Bolsonaro is losing allies in Congress as he fights over control of his own political party and tries to distance himself from allegations of campaign financing irregularities at last year’s elections
  • Senate Economic Affairs Committee approved a bill that defines the criteria for the division between states and municipalities of resources from the transfer of rights oil auction
  • Brazil economists cut inflation forecasts for this year and next while also lowering estimates for the key rate at the end of 2020 on the heels of a surprise consumer price reading
  • An economic activity index that’s a proxy for gross domestic product rose 0.07% in August from the prior month, missing economists’ estimate for a 0.2% gain
  • The head of Jair Bolsonaro’s party PSL, Luciano Bivar, was targeted by a Federal police investigation for alleged misconduct in campaign funding for the party’s candidates, according to local media
  • Central bank president Roberto Campos Neto said he sees room for additional interest rate cuts even as Latin America’s largest economy begins to show signs of recovery
• Mexico’s state-owned oil company Pemex sent new formulas for pricing the nation’s crude exports to refiners and other buyers Thursday
• Argentina’s monthly inflation rate surged in September by the most in a year following the peso’s plunge, compounding a string of bad economic data ahead of presidential elections
  • Presidential candidate Alberto Fernandez is not in favor of maintaining Guido Sandleris at the helm of the nation’s central bank, Perfil reported on website
• Peru’s economic activity rose 3.39% in August from a year earlier
• A Colombian court ruled a tax reform passed last year violated the constitution, but gave the government until the end of the year to fix it
  • President Ivan Duque ordered the Finance Ministry to submit a new financing law to Congress
• The White House and House Democrats are increasingly upbeat that the stalled U.S.-Mexico-Canada trade agreement can be amended and approved in Congress
  • Construction activity in Mexico City has come grinding to a halt this year as a corruption crackdown emerges as a new threat to national economic growth
• After years without publishing new data, Venezuela’s National Institute of Statistics, known as INE, published figures showing that even amid hyperinflation and shortages of basic goods, poverty actually fell

--With assistance from Selcuk Gokoluk, Colleen Goko, Alec D.B. McCabe 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: Karl Lester M. Yap at kyap5@bloomberg.net, Robert Brand

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