U.S.-Led Stock Sell-Off Weighs on Emerging-Market Equities

(Bloomberg) -- The stocks rout that began in the U.S. pushed emerging-market equities to a third weekly decline, while their currencies edged higher as Treasury yields came off their peak.

AssetsWeekly Moves
MSCI EM stocks index-2.1 percent
MSCI EM FX index+0.2 percent
Bloomberg Barclays Global EM Local Currency bond index+0.4 percent

Listen here: Emerging Markets Weekly Podcast

Highlights for the week ended Oct. 12:

  • President Donald Trump slammed the Federal Reserve as “going loco” for its interest-rate increases this year in comments hours after the worst U.S. stock market sell-off since February
  • U.S. Treasury Department’s staff have advised Secretary Steven Mnuchin that China isn’t manipulating the yuan, according to two people familiar with the matter; earlier in the week, a senior Treasury official said the Trump administration is concerned about the Chinese yuan’s depreciation as the Treasury Department weighs whether to name China a currency manipulator in a report
  • U.S. Secretary of State Michael Pompeo cited “fundamental disagreement” with China’s foreign minister during a testy exchange in Beijing
  • Trump and Chinese leader Xi Jinping have agreed to meet next month at the G-20 summit in Buenos Aires in hope of resolving their intensifying trade conflict, Washington Post reported
  • The International Monetary Fund cited trade tension and stresses in emerging markets as it cut its global growth projections for the first time since July 2016
  • Turkish lira was the best-performing emerging-market currency as a court in Izmir released U.S. Pastor Andrew Brunson for time already served, removing a key source of tension between Turkey and the U.S.
  • Indian Prime Minister Narendra Modi’s government is considering tapping Indians living overseas to lure foreign exchange flows and prop up a sagging rupee, according to people with knowledge of the matter
  • Trump said the U.S. could take “very, very powerful, very strong, strong measures” if the Saudi Arabian leaders are found responsible for the disappearance of Washington Post writer Jamal Khashoggi
    • He also said the U.S. would be “foolish” to cancel large arms deals with the kingdom
    • Saudi Arabia will retaliate against any punitive measures with an even “stronger” response, the official news agency reported on Oct. 14, citing an official it didn’t identify


  • China’s Shanghai Composite Index had its worst week since February and fell to a four-year low; the nation posted a trade surplus of $31.7 billion in September, more than the median estimate $19.2 billion, and the $26.7 billion surplus the previous month
    • An indicator produced by a Beijing-based business school in the style of the closely-watched purchasing managers index plunged last month, adding to concerns about the slowing economy in China
    • The nation shows its strength, selling $3 billion of dollar bonds in “very weak” market
    • China’s central bank is considering a range of risks in its currency policy, including a worst-case scenario, Governor Yi Gang said Oct. 14, adding that “the yuan’s volatility is normal”
  • Trump said he and North Korean leader Kim Jong Un have “made incredible progress” on negotiations over Pyongyang’s nuclear weapons program and are considering three to four locations for a second summit that would take place after the November midterm elections
    • North Korean leader Kim offered to allow inspectors into dismantling missile engine test site and Yongbyon nuclear facilities in return for end of war declaration
    • South Korea posted current-account surplus of $8.44 billion in August, compared with excess of $8.76 billion in July
  • Indian rupee halted a six-week losing streak while the Sensex index also rallied; India has all options, including sale of bonds to non-resident Indians, on the table in order to deal with current-account gap and the rupee, a government official told reporters in New Delhi, asking not to be identified
    • Indian consumer prices rose 3.77% Y/y in Sept., below estimate of 4.02%
    • Demand in India’s economy may be cooling, according to the central bank surveys
  • Thai baht was the best performer among Asia’s emerging currencies; Thailand’s economy is solid enough to handle an interest-rate increase and expectations of tightening this quarter are already partially reflected in the strength of the baht, according to the central bank
    • A general election will be held in February, Prime Minister Prayuth Chan-Ocha told Japan Premier Shinzo Abe during a meeting in Tokyo, according to a government statement
  • Indonesian rupiah declined a 4th straight week; Bank Indonesia is adopting tighter monetary policy in response to rising risks from global economic developments but is complementing that with accommodative macro policies, according to Governor Perry Warjiyo
    • Indonesia will start a domestic non-deliverable forward market next month as part of its efforts to defend its currency
    • The U.S. “needs to be very mindful that spillover from the effect of their policies is very real for many countries,” Finance Minister Sri Mulyani Indrawati said
  • Malaysian ringgit dropped a third week; the nation will devise new taxes soon to shore up a state budget that’s been constrained by debt and changes to the consumption levy, Prime Minister Mahathir Mohamad said
    • Anwar Ibrahim emerged as the winner in a district by-election, clearing the way for the formerly jailed leader to become the nation’s eighth prime minister in a year or two. Anwar, leader of the largest party in the ruling coalition, was sworn in as member of parliament this Monday
  • Philippines stock exchange PSEi index extended its losing streak to a sixth week; the central bank is ready to tighten monetary policy further to rein in prices and support the currency if needed, Deputy Governor Diwa Guinigundo said
    • GDP growth will be 6.5 percent in 2018 as investment and infrastructure spending help counter the impact of higher interest rates, said Finance Secretary Carlos Dominguez
    • The country posted a trade deficit of $3.51 billion in August, compared with shortfall of $3.55 billion the previous month
  • Taiwan’s benchmark Taiex index had the worst week in eight months while the Taiwan dollar fell to a 19-month low on an intraday basis; the island’s leader Tsai Ing-wen cautioned China against any efforts to interfere in local elections next month in a toughly worded speech


  • Turkish government has told U.S. officials that it has audio and video recordings that prove Washington Post columnist Jamal Khashoggi, a Saudi government critic, was killed inside the Saudi consulate in Istanbul this month, Washington Post reported, citing unidentified U.S. and Turkish officials
    • Incident is prompting some global business leaders to back away from the "Davos in the Desert" event scheduled to take place in Saudi Arabia this month
      • The Tadawul All Share Index in Riyadh declined as much as 7 percent on Oct. 14
    • Turkey posted its biggest monthly current account surplus on record in August, the first time there was no deficit since September 2015
      • Banks will start cutting rates by 10 percent on some outstanding loans, Treasury and Finance Minister Berat Albayrak said
      • Borsa Istanbul 100 Index was among the world’s best-performing gauges in dollar terms
  • U.S. Treasury Secretary Steve Mnuchin said Rusal sanctions targeted billionaire Oleg Deripaska and not companies
    • Russia’s Finance Ministry said budget surplus widened this year; current-account surplus also widened in 3Q, according to central bank figures
    • Russia’s MOEX index trimmed its weekly decline to less than 2 percent, still the steepest slump since July; Gazprom, Lukoil and Rosneft were the biggest drags on the benchmark as Brent crude slumped
  • South African rand was among the best performers; President Cyril Ramaphosa appointed former central bank Governor Tito Mboweni as his finance minister
    • A parliamentary panel will submit its findings on possible constitutional amendments to ease expropriation of land without compensation to the National Assembly at the end of November
    • South Africa’s benchmark FTSE/JSE All Share Index retreated for a third week; bank stocks regained their poise Friday and might have had a better week amid the positive reaction to the appointment of Mboweni as finance minister, were it not for the global market turmoil
  • Nigerian President Muhammadu Buhari issued an executive order seeking the return of cash held in offshore accounts within 12 months with a 35 percent levy, his office said
  • The United Arab Emirates enacted a long-delayed law that would allow its federal government to issue sovereign bonds
    • The nation will establish a Public Debt Management Office to oversee the new federal-level borrowings

Latin America:

  • Brazilian real rallied for second week after Jair Bolsonaro, a right-wing Congressman, stormed to a big lead in the first round of the presidential elections on Oct. 7; second-round vote will take place Oct. 28
    • Bolsonaro commands 58 percent of the voter intentions in latest Datafolha poll, far ahead of Workers’ Party candidate Fernando Haddad, who came in at 42 percent; Ibovespa stock index also climbed a second week
    • Retail sales rose more than expected in August on the back of broad-based gains in all but one sector surveyed
  • Mexico’s peso fell; Senator John Cornyn, the No. 2 Republican in the chamber, said there will need to be lots of consultations on a bill to implement the new trade agreement between the U.S., Canada and Mexico
    • Annual inflation accelerated for the fourth straight month in September, moving further above the central bank’s target on the back of surging energy costs
    • Mexico’s benchmark IPC index retreated for a second week while the TIIE swap curve fully priced out chances of easing over the next 12 months
  • Argentine peso posted the best performance among Latam currencies; market sentiment continued to improve as central bank’s benchmark 7-day Leliq rate stayed above 72%, which bolstered confidence in policymaker’s ability to bring inflation under control
    • Merval stock index extended losses for a third straight week
    • READ: Five Signs That the Worst Is Over for the Argentine Peso
  • Colombian peso retreated the most among emerging-market peers amid oil price drops and the central bank’s reserve accumulation program
    • The biggest risk to Latin America is capital outflows and BanRep’s program to sell put options is "designed to buy reserves cheaply", according to Governor Juan Jose Echavarria
    • Colombia hasn’t suffered outflows in September though it would be wise to increase buffers and prepare for "rough times" over the next two years, Echavarria said

Upcoming data:

Monday, Oct. 15Indonesia, IndiaSept. trade data
PhilippinesAug. remittances
KazakhstanMonetary policy decision
Tuesday, Oct. 16ChinaSept. consumer price index
TurkeyAug. industrial production
HungaryMonetary policy decision
Wednesday, Oct. 17South Africa, ColombiaAug. retail sales
RussiaSept. retail sales, unemployment rate
PolandSept. industrial production
Thursday, Oct. 18South Korea, Chile Monetary policy decision
MexicoCentral bank monetary policy minutes
Friday, Oct. 19China3Q GDP, Sept. retail sales, industrial production, fixed-asset investment
PhilippinesSept. balance of payments
PolandSept. retail sales 

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