EM Review: Riskier Assets Battered by Trade War, Political Drama

(Bloomberg) -- Emerging-market currencies and stocks fell last week, trimming September’s advance, as a U.S. impeachment inquiry ignited volatility in global markets.

The backdrop for riskier assets worsened further on Friday after reports that President Donald Trump’s administration would be discussing ways to limit U.S. investors’ portfolio flows into China, opening a new point of tension between the two countries.

The following is a roundup of emerging-markets news and highlights for the week ending Sept. 29.

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

Highlights:

  • Treasury Secretary Steven Mnuchin said U.S. trade talks with Chinese Vice Premier Liu He will be held in Washington the week beginning Oct. 7
    • President Donald Trump asked Mnuchin to explain why the administration requested that a Chinese trade delegation cancel its plans to visit U.S. farms and indicated that he disagreed with the decision
  • Trump said Wednesday that there’s a “good chance” China and the U.S. make a trade deal
    • Earlier in the week, he said a deal could happen “sooner than you think”
    • Trump used his speech at the United Nations General Assembly to reiterate complaints about China’s trade practices just weeks before negotiators from both sides are due to meet in Washington
  • The Chinese government has given new waivers to several domestic state and private companies to buy U.S. soybeans without being subject to retaliatory tariffs, according to people familiar with the situation
    • Chinese companies are preparing to purchase more U.S. pork, according to people familiar with the situation
    • The U.S. has benefited from an expanded economic relationship with a growing China, Foreign Minister Wang Yi said
  • Trump administration officials are said to be discussing ways to limit U.S. investors’ portfolio flows into China in a move that would have repercussions for billions of dollars in investment pegged to major indexes
  • Speaker Nancy Pelosi said the House is opening a formal impeachment inquiry of Trump, saying he’s violated his oath of office and obligations under the Constitution
    • Trump placed himself in deeper political jeopardy by ordering the release of a confidential memorandum recounting his July 25 call with Ukraine’s president, a document showing the president asked the leader of a country dependent on U.S. aid to help him smear a political rival
    • The newly revealed complaint by an intelligence community whistle-blower alleges that multiple government officials were surprised and alarmed about Trump’s conversation with Ukraine’s leader
    • Trump used a closed-door gathering with U.S. diplomats in New York to attack Democratic rival Joe Biden and disparage a whistle-blower complaint over his controversial call with Ukrainian President Volodymyr Zelenskiy
  • China’s economy in the third quarter was the weakest it has been this year, according to the China Beige Book, with manufacturing, property and the services sectors all worsening, even as borrowing picked up
  • The Asian Development Bank cut Developing Asia’s 2019 growth forecast to 5.4% from 5.7% in its latest Asian Development Outlook Update
  • Egypt cut interest rates for the third time this year, seizing on weaker inflation and a stable currency while the Philippine central bank lowered its benchmark interest rate by a quarter point to 4%. Mexico’s central bank reduced borrowing costs costs by a quarter point for the second straight month amid moribund economic growth, with two members voting for a faster pace of monetary easing
  • Saudi Aramco will kick off its much-anticipated initial public offering next month as the oil giant recovers faster than expected from the biggest terror attacks in its history
    • The company is wasting no time pushing ahead with its initial public offering, leaving legions of analysts scrambling to prepare research that will help investors decide whether to buy into one of the world’s biggest ever share sales
Asset Moves:Weekly
MSCI EM stocks index-1.9%
MSCI EM FX index-0.3%
Bloomberg Barclays Global EM Local Currency bond index-0.2%

Asia:

  • China must avoid massive stimulus, keep debt levels sustainable and maintain a prudent monetary policy stance, central bank Governor Yi Gang said
    • The country’s banks will need to distribute excess provisions for soured loans to investors, according to draft rules from the country’s Ministry of Finance that are part its latest attempt to curb accounting malpractice
    • China will remain on the FTSE Russell’s watchlist, according to a statement Thursday that showed the firm demurred on including it in its flagship World Government Bond Index
  • South Korea’s exports are poised for a 10th monthly slide as trade disputes and a tech downturn weigh on overseas demand. Exports during the first 20 days of September tumbled 22% from a year earlier
    • Credit risks for the nation’s companies may increase as the economy’s slowdown hurts earnings, the Bank of Korea said
  • India’s government will maintain its borrowing plan for the remainder of this fiscal year, an official said
    • India’s general government deficit is seen at 7.5% of GDP, well above the ‘BBB’ category median of 1.9%, Fitch Ratings said
    • Trump said he expects a trade deal with India “very soon”
    • India’s central bank should largely maintain the existing framework for banking liquidity, while bringing in flexibility to make it adaptable
  • Thousands of protesters staged rallies across Indonesia’s main cities against sweeping legislation that seeks to outlaw sex outside of marriage, infringe on gay rights and potentially derail efforts to attract more foreign investors
    • The nation’s planned ban on exports of nickel ore could prompt the European Union to complain to the World Trade Organization amid concerns about supply shortages for steelmakers
    • The government could widen its budget deficit next year, if really needed, in an effort to support the economy amid a global slowdown, according to a senior official at the Finance Ministry
  • The Bank of Thailand left its benchmark interest rate unchanged at 1.5% and said it may consider steps to rein in the currency’s strength as economic growth weakens
    • The central bank has tools available for the currency and will use them if necessary, Finance Minister Uttama Savanayana said
    • Cabinet approved a public debt management plan worth 1.73 trillion baht ($56.5 billion) in fiscal year 2020, starting Oct. 1, according to a government statement
  • The Philippine central bank will look at inflation, GDP, and global growth when it decides next on policy rate and are not committed to whether rate cuts are over, Diokno said
    • The nation posted a budget deficit of 2.5 billion pesos ($48 million) in August, the Bureau of the Treasury said. January-August budget deficit at 120.4 billion pesos compared with a shortfall of 282 billion pesos a year earlier
    • Central bank also reduced the amount of funds lenders must hold in reserve, adding more stimulus to the economy one day after cutting the benchmark interest rate
  • Taiwan government plans to issue NT$100 billion ($3.2 billion) of bonds in the fourth quarter
    • Democratic Progressive Party Chairman Cho Jung-tai and other party leaders will participate in a rally organized by civil groups to voice support for Hong Kong democracy and freedom on Sept. 29, according to a statement from Taiwan’s ruling party
    • China is putting more pressure on Taiwan’s diplomatic allies and the island may lose one or two more by the end of the year, according to an analysis report by Taiwan’s National Security Council
  • FTSE Russell will keep Malaysia on a watchlist for exclusion from its World Government Bond Index, signaling that policy makers may need to do more to widen market access
    • The government remains on track to meet its targets for 2019 including fiscal deficit at 3.4% of GDP, Finance Minister Lim Guan Eng said
    • August consumer prices rose 1.5% from a year earlier

EMEA:

  • South Africa raised $5 billion in its biggest Eurobond sale to date, offering returns that compensated investors for increasing fiscal problems
    • The National Treasury said due to favorable pricing and a sizable order book, it was able to pre-fund an additional $1 billion above a planned $4 billion in bond sales
    • The economy remains stuck in its longest downward cycle since 1945, adding to pressure on the government to implement reforms to lift business confidence and boost growth
  • Nigeria’s central bank wants to see inflation at 9% or below before considering cutting its key rate, and that will likely only happen next year, according to Governor Godwin Emefiele
  • Kenya’s central bank kept its benchmark interest rate unchanged for a seventh consecutive meeting as inflation is seen staying inside the target, and signaled that it may start cutting soon
  • Turkey’s central bank might look to moderate the pace of easing after two massive interest-rate cuts in three months
    • The bank has limited policy space after “front-loaded” monetary easing in July and September, Governor Murat Uysal said in a rare public appearance
  • Hungary’s central bank partially reversed modest monetary tightening steps taken earlier this year as subdued inflation outweighed concern over a steady fall in the forint
  • Czech central bankers signaled their desire to continue raising borrowing costs is still alive, even as risks from the global slowdown have, for now, held them back
  • When Ukraine’s president spoke by phone with Trump in July, he’d only been in his job a couple of months. A transcript of the call at the center of the impeachment debate around the U.S. president depicts a novice leader eager to please his more powerful counterpart
    • A mission from the International Monetary Fund is leaving Ukraine without an accord over a new loan as controversy swirls around the eastern European country’s biggest lender and attacks on a former central bank governor
    • S&P Global raised Ukraine’s long-term foreign currency score to B from B-
  • Middle Eastern and North African borrowers are issuing Eurobonds at a record pace as global monetary easing prompts them to exploit the lowest funding costs they have ever experienced
    • Abu Dhabi sold $10 billion of bonds in its first international deal in two years, while Bahrain issued $2 billion of conventional and Shariah-compliant debt
    • Saudi Arabia is said to plan a dollar sukuk as soon as October
  • Saudi Arabia’s credit ranking was affirmed at A- by S&P Global Ratings as the kingdom recovers faster than expected from the biggest attack ever on its oil industry
  • Lebanon sent a proposal to banks for a potential Eurobond sale in order to finance its needs for the rest of the year, a person familiar with the matter said
  • Iranian President Hassan Rouhani vowed not to enter talks with Trump while under what he called America’s “merciless economic terrorism,” the latest sign that efforts to bring the two leaders together at the United Nations are foundering
  • A “significant portion” of $23 billion in loans made to Dubai government-related companies maturing at the end of 2021 may need to be restructured again, according to Fitch Ratings

Latin America

  • Brazil’s central bank sees inflation remaining below target in the next two years, according to a quarterly inflation report published on Thursday
    • Economy will gain speed in the coming quarters but more stimulus is needed to sustain its incipient recovery, central bank board members wrote in the minutes of their last meeting
    • President Jair Bolsonaro asserted Brazil’s sovereignty over the Amazon and attacked the legacy of socialism in Latin America in a defiant speech to world leaders at the United Nations General Assembly
    • Government is pushing ahead with a controversial bill that allows mining activity on indigenous lands, a cabinet member said
    • Government and Congressional leaders reached an agreement to speed up reforms and guarantee the effectiveness of the long-waited transfer-of-rights oil auction
    • Pension reform bill first-round vote on Senate was postponed to Oct. 1. Second vote still expected to occur by Oct. 10, but Senate leader Davi Alcolumbre said it would be fine if it occurs by mid-October
    • Unemployment rate remained steady in the three months through August, unexpectedly ending a streak of declines
  • Argentina’s financial program with the IMF will be on hold for some time as the nation grapples with severe political and economic uncertainty, Acting Managing Director David Lipton said in an interview
    • Economy Minister Hernan Lacunza said nation will hold more meetings with the IMF on Oct. 14
    • Government said it will refund exporters who have previously sold, in local exchange market, the currencies obtained with foreign sales and also created a financial assistance program for provinces
    • Central bank is said to increase inspections at banks and foreign exchange houses and will open investigations into savers who have violated controls implemented this month by buying more than $10,000
    • Country’s chaotic return to capital controls is claiming another casualty: The $530 million NDF market
    • A top ally to presidential candidate Alberto Fernandez said the country needs to maintain a positive working relationship with the IMF
    • Argentina’s economic activity index rose 0.6% in July from the year earlier, compared with analyst estimates for a decline of 1.6%
  • Mexico’s consumer prices rose an annual 2.99% in early September, the least in three years
    • President Andres Manuel Lopez Obrador said Democratic lawmakers have told him they support passing USMCA trade deal
    • Nation is tackling Pemex’s issues in a “disciplined way” and refinancing should ease sovereign rating downgrade concerns, Finance Minister Arturo Herrera said
    • Unemployment rate was at 3.74% in August, from 3.71% in the previous month, and July retail sales rose 2.1%, exceeding expectations
  • Colombia left its key interest rate unchanged as a falling peso and a surge in consumer spending make policy makers wary of following other emerging markets in boosting stimulus
    • Debt to GDP ratio is set to decline in 2020, Finance Minister Alberto Carrasquilla said
  • Peruvian lawmakers voted down the government’s proposal to hold an early general election, in a blow to President Martin Vizcarra’s bid to end political gridlock
    • Vizcarra said in an interview earlier in the week that the best option is to call early presidential and parliamentary elections in 2020, in which he won’t be a candidate, to give the country a fresh start
  • Puerto Rico took the next major step toward slashing its debt as a federal board that oversees the island’s finances released a long-awaited restructuring plan that would repay bondholders a fraction of what they’re owed and cut retirees’ pensions
  • Paraguay’s central bank cut interest rates by a quarter point to an almost nine-year low of 4% to aid a struggling economy
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