U.S. Wrangling to Destroy Christmas Calm Across Emerging Markets

(Bloomberg) -- If emerging markets had their way, this Christmas week would be like any other: quiet, with just a handful of economic releases and low trading volumes. But political dramas playing out in the U.S. are keeping investors on tenterhooks.

The U.S. government shutdown over President Donald Trump’s demand for border-wall funding is likely to last past Christmas. And even though Treasury Secretary Steven Mnuchin tried to reassure financial markets that Federal Reserve Chairman Jerome Powell wouldn’t be ousted, investors are nervous. Last week, the S&P 500 Index suffered its biggest weekly loss since 2011.

“If equity markets fall further, they’re going to set off machine-based selling,” said Saed Abukarsh, the co-founder of Dubai-based hedge fund Ark Capital Management. "The other risk is that experienced traders are on holiday, so the ones left will be trigger happy with every new headline. Meanwhile, most traditional risk takers haven’t had a good year, and they’re unlikely to add to their portfolios.”

While the turmoil comes from developed markets this week, there are a handful of events investors will be keeping an eye out for in emerging economies, including Egypt’s interest rate decision, Brazil’s budget balance and Argentina’s economic activity index.

“I can’t see buyers stepping into this market to stem off any selling pressure until January," said Abukarsh. "So if you need to adjust your books for the year-end with any meaningful size, you’re going to have to pay for it.”

Emerging-market currencies and equities declined on Monday in Asia trading, though some assets including the yuan and the baht managed to advance. For the year, stocks are set for their biggest annual loss since 2011, and bonds and currencies are headed for their first yearly drops since 2015.

• Egypt’s central bank may decide to hold its policy rates steady on Dec. 27 even as inflation moderates. Consumer-price growth eased to 15.7 percent in November, coming within policy makers’ target range
• Mexican markets are waiting for Congress to approve the 2019 budget. For a peek at the macroeconomic backdrop, the government releases November unemployment data on Monday. The rate is expected to drop to 3.20 percent from 3.24 percent, according to economists surveyed by Bloomberg
• Argentina’s October economic activity index will be on the radar for bond investors after the nation’s hard-currency notes sold off due to growing concern about the impact the recession will have on President Mauricio Macri’s chances of being re-elected in 2019
• Brazil will release fiscal data on Friday, including the primary and nominal budget balances and net debt-to-GDP. The releases come days before President-elect Jair Bolsonaro takes office with a promise to overhaul the social security system to shore up the country’s public accounts
• Chinese industrial profits for November and South Korean December consumer confidence, both due Thursday, will provide more clues on the severity of the U.S. trade war’s impact

--With assistance from Tomoko Yamazaki and Alec D.B. McCabe.

To contact the reporters on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net;Andrew Janes in Singapore at ajanes@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net;Srinivasan Sivabalan in London at ssivabalan@bloomberg.net

To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net, Shaji Mathew, Rachel Graham

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