U.S. President Donald Trump, left, and Xi Jinping, China’s president, shake hands during a news conference. (Photographer: Qilai Shen/Bloomberg)

The Xi-Trump Meeting May Be a Watershed for Emerging Markets

(Bloomberg) -- With the U.S.-China trade dispute still very much a wild card, this week’s meeting between President Donald Trump and Xi Jinping of China may turn out to be a watershed moment for emerging markets.

Investors will be looking for signs of a truce between Washington and Beijing when the leaders meet at the sidelines of the Group of 20 leaders’ summit in Buenos Aires. Even the smallest of steps toward resolving the trade dispute will be welcomed by investors, according to Daniel Morris at BNP Paribas Asset Management.

“If we get some sort of signal at the end of the month that there will be cooperation or negotiation between the U.S. and China instead of further escalation, that could be the catalyst for additional dollar weakness,” said Morris, a senior investment strategist at the company in London. “It should also support the local markets.”

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The Xi-Trump Meeting May Be a Watershed for Emerging Markets

Emerging-market stocks rose the most in more than 10 days on Monday and most currencies strengthened as investors continued to price in a slower pace of rate hikes by the Federal Reserve and signs of reduced turmoil over Brexit and Italy’s budget woes stoked risk appetite. Fed Chairman Jerome Powell and Vice Chairman Richard Clarida are due to speak this week, while minutes of the Fed’s November meeting will be released Thursday, events that will be crucial in determining the direction of the dollar. So-called carry returns, which investors get from borrowing in low interest-rate currencies like the dollar to buy higher-rate ones, are this month set for the highest since January.

G-20 Action

  • While OPEC is due to meet on Dec. 6 in Vienna, key decision makers are set to gather on the sidelines of the summit in a meeting that may well decide the direction of oil prices in 2019
  • U.S., Mexico and Canada may sign their new trade agreement
  • Saudi Crown Prince Mohammed Bin Salman told Turkey’s President Recep Tayyip Erdogan that he would like to meet during the summit

South Korean Dilemma

  • Bank of Korea will meet on Friday for the last time this year. Policy makers will have to decide whether to keep on supporting growth amid risks of external uncertainties from the U.S.-China trade war, or put more emphasis on stemming financial imbalances associated with high household debt and housing prices. The monetary authority is seen raising the benchmark rate by 25 basis points to 1.75 percent on Friday, the first increase in about a year

Referendum in Mexico

  • Referendums on infrastructure projects and the final chapter of the new Nafta deal may dictate the moves in the Mexican peso, which slid for eight straight weeks on concern President-elect Andres Manuel Lopez Obrador is taking a more interventionist stance on the economy
    • Mexicans voted over the weekend on 10 infrastructure projects just weeks after an October referendum ended with the cancellation of a partially built $13 billion airport, roiling markets
  • Lopez Obrador will be sworn in on Saturday and will address the nation in the afternoon. The central bank will release its quarterly inflation report.

Strike in Argentina

  • Argentine markets will follow a planned strike by employees of the nation’s state-run airline, which will cancel all flights on Monday, days before world leaders gather in Buenos Aires for the G-20 meeting
  • Brazil’s GDP data on Friday will show whether the nation has recovered from a truckers’ strike that paralyzed activity and pressured stocks and the real.

Data and Events

  • India’s GDP growth probably slowed to 7.4 percent in the third quarter from 8.2 percent, according to the median estimate of economists in a Bloomberg survey. Weaker exports and private consumption support expectations of a slowdown, Prakash Sakpal, an economist at ING Groep NV, wrote in a note. The rupee is the biggest decliner among emerging Asian currencies this year
  • China’s manufacturing PMI for November will likely hover around 50, where it has been since September, ING’s Sakpal estimates, adding that while growth in overseas shipments has held up, export orders have been contracting, dragging down industrial production
  • German Chancellor Angela Merkel and Ukrainian Prime Minister Volodymyr Hroisman address a Germany-Ukraine business forum on Thursday

Click here for upcoming economic and data releases in Asia, here for Eastern Europe, here for the Middle East and Africa and here for Russia. And click here for Latin American data.

©2018 Bloomberg L.P.