An employee works inside a currency exchange store at Bukit Bintang in Kuala Lumpur, Malaysia. (Photographer: Sanjit Das/Bloomberg)

Treasury Yield Above 3% Dents Demand for Risk Assets: EM Review

(Bloomberg) -- Emerging-market assets declined as the U.S. 10-year yield soared above 3 percent and the dollar advanced, sapping demand for riskier assets.

The MSCI Emerging-Market Currency Index fell for a fourth week, the longest losing streak since October. A gauge tracking developing-market stocks retreated 1 percent. The Bloomberg Barclays index for EM local currency government bonds slid 1.2 percent, its biggest loss since December 2016.

What you Need to Know About Emerging Markets This Week: Audio

Highlights for the week ended April 27:

  • Kim Jong Un on Friday became the first North Korean leader to enter South Korea since the peninsula was divided almost seven decades ago; the two leaders agreed to finally end a seven-decade war this year, and pursue the “complete denuclearization” of the Korean Peninsula
    • Kim Jong Un promised to close his main nuclear weapons test site in May and said he will invite South Korean and American media to witness the shutdown
    • U.S. President Donald Trump expects his historic meeting with North Korea’s Kim Jong Un will take place “over the next three or four weeks”
  • The U.S. economy expanded 2.3 percent in the first quarter of 2018 on a seasonally-adjusted annualized basis, beating estimates of 2 percent while slowing down from 2.9 percent in the prior quarter
  • Argentina’s central bank raised its seven-day repo rate by 3 percentage points to 30.25 percent Friday
  • Russia’s central bank kept its policy rate at 7.25%, in line with market expectations
  • Turkey’s central bank defied expectations by raising its late liquidity window, the rate it uses to set bank funding costs, by a greater-than-anticipated 75 basis points
  • French President Emmanuel Macron said he thinks Trump will withdraw from the Iran nuclear accord, dealing a blow to the six-nation agreement reached in 2015 and endorsed by world powers

Asia:

  • The yuan fell for a second week, the longest losing streak since December
    • China is considering cutting import duties on cars by around half, according to people with direct knowledge of the matter
    • Trump is dispatching his top economic and trade advisers -- Larry Kudlow, Robert Lighthizer and Peter Navarro -- to join Treasury Secretary Steven Mnuchin on a visit to China, two people familiar with the matter said; U.S. wants broad agenda on China trade negotiations, Kudlow says in interview with CNBC
    • China granted additional quota for funds to invest in securities overseas for the first time in three years
  • South Korea’s won weakened; the nation’s economic growth expanded 2.8 percent in the first quarter from a year earlier, compared with a growth of 2.8 percent in the fourth quarter
  • Indonesian rupiah slipped; the country’s central bank has made a ‘‘quite large’’ intervention in foreign-exchange and bond markets to maintain currency stability in line with fundamentals, Governor Agus Martowardojo said
    • Also said the central bank “won’t hesitate” to raise interest rates to stabilize the rupiah
  • The Philippine peso was Asia’s best performer as the outlook on BBB sovereign debt rating was revised to positive from stable by S&P Global Ratings
    • Bangko Sentral ng Pilipinas committed to price and financial stability mandates that provide environment conducive to growth, Governor Nestor Espenilla said after the revision
  • Malaysian ringgit weakened for a fourth week; Prime Minister Najib Razak said his government will let financial markets decide the direction of the currency as he focuses on improving the economy and on his reform agenda
  • Low inflation and solid growth mean there’s no pressing need to devalue the Pakistani rupee in the near term, State Bank of Pakistan Governor Tariq Bajwa said

EMEA:

  • Russia’s ruble pared its weekly slide on Friday; Oleg Deripaska offered concessions on his ownership of En+ Group Plc in a bid to cast off the yoke of U.S. sanctions
    • Trump is seeking a “detente” and wants to work with President Vladimir Putin to achieve this, according to the U.S. ambassador in Moscow
    • Putin is planning a roughly 10 trillion-ruble ($162 billion) increase in spending on health care, education and infrastructure, according to people familiar with the plans
  • South African rand extended its slide to five weeks, the longest since October 2014
    • Consumer confidence in South Africa has made an unprecedented jump to an all-time high after the exit of Jacob Zuma as president 
  • Czech koruna fell against the dollar for a second week; record-low unemployment and rising salaries will eventually feed into Czech inflation, though price growth will probably remain subdued this year, according to the central bank’s chief forecaster
  • Romanian leu retreated; President Klaus Iohannis called for the prime minister, who has held the post since January, to resign as he thinks she’s a “vulnerability” to the European Union member state
    • READ: Romanian Corruption-Buster Says EU Shouldn’t Let Up on Graft
  • Angola to sell at least $2 billion of Eurobonds in international markets in May, Portuguese news agency Lusa reports, citing Angolan Finance Minister Archer Mangueira
  • Saudi Arabia is delaying the initial public offering of its stock exchange on hopes that a potential MSCI Inc. upgrade could boost its value, according to people with knowledge of the matter

Latin America:

  • Mexican peso briefly weakened past 19 key level before trimming its weekly loss
    • The Trump administration and its Nafta partners are stepping up efforts to reach a tentative deal in the coming days as the U.S. prepares for potentially rocky discussions with China; an agreement within a few days is "definitely possible," according to Mexico’s foreign minister Luis Videgaray
    • Annual inflation slowed to 4.69 percent in early April, the lowest in more than a year, from 4.9 percent at the end of March
  • Brazil’s real retreated; former President Luiz Inacio Lula da Silva, who’s currently jailed on corruption charges, would have 20 percent of votes for president in Sao Paulo state, according to Ibope poll commissioned by Band TV
    • Current-account surplus at $798 million in March versus an estimated $100 million deficit
  • Colombian peso extended its drop for a second week; two opinion polls confirmed the lead of center-right presidential candidate Ivan Duque
    • Central bank cut borrowing costs to the lowest since 2014 in the last policy meeting before the presidential election
  • The Argentine peso slumped 1.7 percent; policy makers will use all tools at its disposal to conduct monetary policy and reach its inflation target, central bank said

Upcoming data:

Monday, April 30ChinaApril manufacturing, non-manufacturing PMIs
TurkeyMarch trade balance and foreign tourist arrivals; central bank inflation report
Mexico1Q GDP
South KoreaMarch industrial production
ThailandMarch manufacturing production index, current-account balance
South AfricaMarch trade balance, money supply
ChileMarch copper production, unemployment rate
Tuesday, May 1ThailandApril consumer price index
South KoreaApril trade data
Wednesday, May 2Indonesia, South Korea, PolandApril consumer price index
ChinaApril Caixin PMI Manufacturing
Thursday, May 3TurkeyApril consumer price index
BrazilMarch industrial production
Czech Republic, Chile Monetary policy decision
Friday, May 4PhilippinesApril consumer price index
China1Q current-account balance
MalaysiaMarch trade data
South KoreaMarch current-account balance
TaiwanApril foreign reserves

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