EM Review: Vaccine Advance, EU Accord Underpinned Risk Sentiment

(Bloomberg) -- Optimism over the development of a coronavirus vaccine and an agreement by European Union leaders on a stimulus package underpinned risk assets last week. The positive sentiment was tempered by worsening U.S.-China relations, with the Trump administration ordering the closure of a Chinese consulate in Houston and Beijing retaliating by shutting the American one in Chengdu.

The following is a roundup of emerging-market news and highlights for the week through July 26:

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Highlights:

• The U.S. government ordered China to close its consulate in Houston in an “unprecedented escalation,” the Chinese Foreign Ministry said, in the latest sign of deteriorating ties between the world’s biggest economies
  • In retaliation, China ordered the U.S. to close its consulate in the southwestern city of Chengdu
  • The U.S. decision to shutter the Chinese consulate in Houston followed years of frustration about what it says were criminal and covert activity directed by Beijing to steal trade secrets and carry out malign influence operations across the U.S.
  • Beijing slammed the “forced entry” to its Houston consulate by U.S. personnel hours earlier and vowed to respond “as necessary”
  • U.S. Secretary of State Michael Pompeo cast China’s leaders as tyrants bent on global hegemony, painting a dark portrait of the country as tensions between the two countries escalate
  • China warned the U.S. to think “carefully” about where their relationship was heading in response to a question about their trade deal that came amid the flare up in tensions
  • Australia joined the U.S. in rejecting China’s expansive maritime claims in the South China Sea, calling them “inconsistent” with the 1982 United Nations Convention on the Law of the Sea
  • The U.K. suspended its extradition treaty with Hong Kong and placed it under an arms embargo in moves likely to exacerbate a diplomatic spat with China after it imposed a new security law on the former British colony
  • China and France promised to work more closely in areas ranging from aircraft sales to 5G networks in a video meeting that highlighted some of the countries’ biggest economic concerns during the pandemic-driven slump and an intensifying rivalry with the U.S.
  • China’s traders, company insiders and foreign investors are all fleeing the country’s stock market. Sentiment is souring amid the biggest threat to Beijing’s diplomatic ties with Washington in years
• European Union leaders agreed on a stimulus package worth 750 billion euros ($869 billion) to pull their economies out of the worst recession in memory and tighten the financial bonds holding their 27 nations together

• A coronavirus vaccine the University of Oxford is developing with AstraZeneca Plc showed promising results in early human testing, and is now set to move into larger trials

  • In signing a $2 billion deal to supply their experimental coronavirus vaccine to the U.S., Pfizer Inc. and BioNTech SE are setting a price ceiling of less than $20 a dose that will impact how much other companies can charge to protect people from Covid-19
  • The U.S. accused two Chinese hackers of working for Beijing to steal or try to steal terabytes of data, including coronavirus research, from Western companies in 11 nations
  • President Donald Trump rebooted his coronavirus briefings with a warning about a surge in U.S. cases even as he sought to reassure Americans that his administration has the crisis under control
  • China will provide a $1 billion loan for Latin American and Caribbean countries to have access to its Covid-19 vaccine, Foreign Minister Wang Yi told top regional diplomats
  • Republicans crafting their own plan for a new U.S. virus-relief bill broadly endorsed a fresh round of stimulus checks to individuals, extended supplemental jobless benefits and more money for testing
• Argentina’s three largest creditor groups joined forces to submit a new bond restructuring proposal that would provide the country with more than $35 billion in debt relief over the next nine years
• The European Commission is scaling back new rules for financial benchmarks to enable money managers in the bloc to continue relying on the spot currency exchange rates of South Korea and Taiwan, according to documents seen by Bloomberg

Asia:

• Chinese President Xi Jinping called on companies to step up innovation and help stabilize employment, reflecting an urgency to bolster the economy in the face of the coronavirus outbreak
• Billionaire Jack Ma’s Ant Group is seeking a valuation above $200 billion as it goes public in Hong Kong and Shanghai, people familiar with the matter said
  • Demand for the Hong Kong dollar is swelling before a mega Chinese share sale in the city, ending the currency’s brief period of weakness

• South Korea’s economy slid into a recession with exports plummeting in the second quarter as the coronavirus hurt profits in some of the nation’s largest industries

  • South Korea’s early trade data show exports heading for another monthly drop in July amid weak overseas demand as the pandemic batters global commerce
  • Cracks may be emerging in the so-called ironclad military alliance between South Korea and the U.S., stoking worries in Seoul that the Trump administration is looking to withdraw troops from the peninsula
• Indian companies are pushing back big-ticket investment plans in another blow to an economy that is hurtling toward its first contraction in more than four decades
• Indonesia’s central bank Governor Perry Warjiyo said this month’s rate cut didn’t signal a change to its policy strategy and the currency is poised for a rebound after weakening beyond its fundamentals
  • Coronavirus cases in Indonesia exceeded China’s after an easing of social distancing rules for the resumption of economic activities triggered a surge in infections
  • An Indonesian state-owned drugmaker plans to start human trials of Sinovac Biotech Ltd.’s coronavirus vaccine next month and aims to begin commercial production early next year
  • Palm oil stockpiles in Indonesia will probably slump after floods in major growing regions disrupted the harvest and delivery
  • Indonesia, the world’s biggest palm oil producer, said it will keep the export tax for crude palm oil at zero in August
• Thailand is replacing the top two officials steering the economy, injecting more uncertainty into the policy outlook
  • A Thai committee extended the nation’s state of emergency to the end of August, while also allowing more foreigners to enter the country in the latest round of coronavirus-control measures
  • The Bank of Thailand doesn’t manage the currency to gain unfair competitive advantage over the U.S. and intervention has been two-way depending on the intensity of the capital flows, Assistant Governor Chantavarn Sucharitakul said
  • Thailand has selected two finalists to head its central bank as the country grapples with its worst economic crisis ever
  • Thailand is set to lose its status as the world’s second-largest rice exporter this year, as drought and a resilient currency make shipments more expensive than those from other growers including India and Vietnam

• Philippine central bank Governor Benjamin Diokno says the FX assumption for this year may be adjusted to 50-52 pesos per dollar from 50-54 pesos

  • The Philippines’ foreign-exchange reserves could reach $95 billion to $97 billion this year, boosted by offshore borrowings of the government and companies, Diokno said
  • Philippine President Rodrigo Duterte ordered the police to intensify arrests and detentions of those who violate government rules on wearing masks and social distancing, as coronavirus cases surge
• Taiwan’s top financial regulator said global banks are looking to expand on the island after China’s passage of a security law in Hong Kong prompted some firms to rethink their Asian strategies
  • Taiwan is concerned China will target the island after it imposed a security law on Hong Kong, Foreign Minister Joseph Wu said. China’s frequent entering of Taiwan’s air space may signal a change in the status-quo
  • Taiwan’s cabinet approved a plan for an additional budget of NT$210 billion ($7.1 billion) for Covid-19 relief measures
• Pakistan was one of the first countries to welcome China’s Belt and Road Initiative in 2013. The two have gotten together again to revive the project from hibernation
• Vietnam reported two locally-transmitted coronavirus cases after more than three months of no new infections
• Sri Lanka’s central bank pledged $1 billion of U.S. treasury bonds held in the regulator’s reserves as part of its pact with the Federal Reserve to boost dollar liquidity during the coronavirus pandemic

EMEA:

• The Bank of Russia surprised economists by delivering its smallest interest-rate cut in months and only cautiously leaving the door open to further reductions
  • Russian incomes in the second quarter plunged by the most since the country’s 1998 default as the economy of the world’s biggest energy exporter took a double blow from the pandemic and slump in global oil demand
  • President Vladimir Putin in 2018 set out the goal of getting the Russian economy in the top five globally by 2024. Two years of stagnation later, and he’s quietly dropping the target

• Turkey’s economic order is due for the biggest makeover in generations led by the head of the country’s wealth fund

  • Turkey rejected Greece’s argument that its energy exploration in the eastern Mediterranean encroaches on Greek territory, suggesting tensions in the region will remain high
  • U.S. President Trump would be forced to impose sanctions on Turkey over its purchase of a Russian missile defense system under legislation approved in the House of Representatives
  • S&P Global Ratings kept Turkey’s sovereign assessment unchanged and maintained its stable outlook on Friday
• An unexpected 0.5% year-on-year increase in Polish industrial output in June is boosting hopes of a quick economic recovery from the coronavirus pandemic
• Hungary’s central bank looked to assure investors that it won’t join Europe’s rush toward zero interest rates after it cut its benchmark a second time in as many months

• Ukraine returned to the international debt market with Europe’s highest-yielding dollar Eurobond this year after the sudden departure of its central bank governor torpedoed the previous attempt

  • The Ukraine central bank unexpectedly paused a monetary-easing campaign that stretched for more than a year
• Saudi Arabia is accelerating plans to sell off state assets and isn’t ruling out introducing income tax as the kingdom seeks to boost state coffers hit by the slump in oil prices
  • Saudi Arabia’s Al Othaim family plans to sell shares in its malls business in a deal that could value the company at between $1.5 billion and $2 billion, according to people familiar
  • As the Middle East enters the hottest days of summer, Saudi Arabia is set to burn potentially record amounts of crude oil to run its power plants and keep its citizens air-conditioned
• Gulf Arab economies will borrow a record amount this year to help cover budget deficits expected to add up to about $490 billion over the next three years, according to S&P Global Ratings
• Egypt is looking to get its debt strategy on track after it was thrown off course by the global pandemic as foreign investors flock back to local assets
• Qatar Airways is seeking at least $5 billion from the United Arab Emirates, Bahrain, Saudi Arabia, and Egypt for stopping it from using their airspace
• The Export-Import Bank of the U.S. opened a new front in the trade war between America and China with its biggest loan yet in sub-Saharan Africa, as it plans to compete more aggressively on the continent
• Kenya’s shilling slipped to a record amid increased corporate demand for dollars following the lifting of some government restrictions aimed at controlling the spread of the coronavirus
• Not even a record rally can entice foreign investors to South African gold stocks. With gold prices soaring on the heels of monetary stimulus, shares in producers of the metal are back in favor around the world

• Nigeria’s central bank wants the nation’s lenders to restructure almost two-thirds of all loans to help borrowers cope with lower oil prices and economic fallout from the coronavirus

  • Nigeria’s dollar shortage is worsening, with the local currency weakening in the parallel market and banks restricting the ability of customers to spend greenbacks abroad using naira cards
• Tunisian President Kais Saied picked his former legal adviser as prime minister-designate, attempting to see off a political crisis that threatens to further derail the economy

Latin America:

• President Sebastian Pinera signed a bill into law late Friday allowing Chileans to withdraw retirement savings, following scenes of citizens lining up by the thousands outside pension fund offices
• Mexican President Andres Manuel Lopez Obrador presented a plan to overhaul the nation’s pension system, seeking to have companies pay more toward employee retirement funds, in a rare display of unity with business leaders
  • Economic activity plunged by a record in May, while inflation numbers edged further above policy maker’s target in early July
  • Transportation Minister Javier Jimenez Espriu quit his post after the president put the military in charge of the nation’s ports
  • Former Pemex CEO Emilio Lozoya said in testimony that lawmakers were paid bribes to pass a 2014 reform that opened the energy sector to private investment, according to Lopez Obrador
• Brazil’s government delivered the first stage of his tax reform proposal to Congress, which unifies the so-called PIS and Cofins taxes into a single VAT with a 12% rate
  • Two bills approved by lower house of congress last week opened the way for more money transfers to states and municipalities
  • Brazil’s Economy Ministry raised its fiscal deficit target for 2020 by about 46%, while consumer prices rose less than expected in mid-July
  • Brazil reported a record number of coronavirus infections days after President Jair Bolsonaro berated social isolation measures, saying they are destroying jobs and compounding pain for the economy
  • Bolsonaro tested negative for Covid-19 the fourth time he took the RT-PCR test. He reported the infection on July 7
• Argentina’s economy rebounded less than expected in May after plunging in April due to a Covid-19 lockdown
  • Mendoza province plans to extend the deadline for its debt offer until Aug. 3, according to a person with knowledge of the matter
  • Argentine authorities haven’t requested International Monetary Fund financing nor a new fund program at this stage, but that doesn’t necessarily need to be tied to an Article IV consultation, an IMF spokesman said
  • Argentina is committed to supporting its state-controlled airline Aerolineas Argentinas, President Alberto Fernandez said
  • Pampa Energia said it will make an interest payment of $18.4 million on a bond due in 2023 during the 30-day grace period
  • Argentina’s international reserves rose $13 million on July 24 to $43.363 billion from $43.350 billion on July 23

• Ecuador has gathered informal support for its debt offer, beyond the Ad Hoc Group, reaching almost 60% of bondholders and approaching the 66% minimum threshold, the Finance Ministry said

  • A bondholder group led by Steering Committee rejected the government’s offer
  • Ecuador’s government urged bondholders to approve the restructuring, setting a deadline for July 31

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