List of emerging market currencies displayed on a screen. (Photographer: Sanjit Das/Bloomberg)

Emerging-Market Currencies Ride Out Fed Hike, Trade-Row Escalation

(Bloomberg) -- Emerging-market currencies rounded off a winning month, defying the prospect of further rate hikes by the Federal Reserve, as more developing-nation central banks deployed tighter monetary policies to backstop local markets.

AssetsWeekly MovesMonthly MovesQuarterly Moves
MSCI EM stocks index-0.3
percent
-0.8
percent
-2
percent
MSCI EM FX index0.2 percent 0.6
percent
-1.6
percent
Bloomberg Barclays Global EM Local Currency bond index0.3
percent
0.2 percent -1.9
percent

Highlights for the week ended Sept. 28:

  • Trade tension between China and the U.S. escalated as some $200 billion of Chinese products became subject to U.S. tariffs on Sept. 24, on top of $50 billion of existing levies. Meanwhile, $60 billion of goods from the U.S. became subject to higher Chinese tariffs, adding to the $50 billion already levied
  • Federal Reserve officials raised interest rates and cemented expectations for another hike this year as they reaffirmed that a strong U.S. economy will probably warrant further gradual increases well into 2019  
  • Turkey’s lira led emerging-market currency gains as a refinanced loan by the nation’s second-largest listed lender cooled concern of a debt crisis
  • Argentine’s peso was the worst performer for the week and the quarter; central bank President Luis Caputo resigned on Tuesday and was replaced by Guido Sandleris, an academic who’d been serving as deputy economy minister; the nation won a promise of extra cash and faster payments from the International Monetary Fund, which expanded a record bailout to about $57 billion over three years
  • China-listed stocks will be added to FTSE Russell’s global indexes; the index compiler will also review Argentina and Vietnam for possible reclassification as secondary emerging markets
  • Poland’s stocks debuted in the FTSE Russell developed-nation benchmark on Monday
  • Donald Trump said there’s "good chance" Canada will join trade pact with U.S. and Mexico, even as he claimed to reject meetings with Justin Trudeau over Canadian tariffs
  • The U.S. Congress is said to be unlikely to pass any new sanctions on Russia, including proposals that would affect its sovereign debt and energy projects, until after November elections
  • The Reserve Bank of India allowed banks to dip further into statutory liquidity reserves to help them meet coverage ratio needs; the government raised import taxes on $12 billion of goods as it seeks to narrow the current-account deficit from a five-year high
  • Indonesia’s central bank raised its benchmark interest rate for the fifth time since May, while the Philippine central bank hiked rates to the highest since 2011

Asia:

  • The Chinese yuan weakened; the nation refuted President Donald Trump’s accusations that Beijing is trying to interfere with congressional elections, a move that further raises tensions as the world’s biggest economies fight a trade war
    • China won’t negotiate with a knife to its throat, Vice Commerce Minister Wang Shouwen says at a briefing in Beijing
    • China to take measures to stabilize trade, help companies, Vice Commerce Minister Fu Ziying says
    • China is preparing to issue a sovereign dollar-denominated bond in October, its first in almost a year, according to people familiar with the matter
  • Thailand’s SET index is up more than 10 percent in the third quarter, making it the best performer in Asia. The baht was among EM’s top gainers during the period; Bank of Thailand Governor Veerathai Santiprabhob said the nation’s medium-term monetary policy would remain accommodative
    • August current-account surplus stood at $753 million versus estimate of $1.36 billion
  • India’s Sensex index fell for a fourth week in local currency terms while the rupee extended a 5-week losing streak
    • India isn’t planning to buy crude oil from Iran in November, raising the prospect that Tehran will lose another customer as U.S. sanctions hit
  • Indonesian rupiah retreated; Bank Indonesia will allow lenders to offer non-deliverable rupiah forward contracts that will settle in the local currency as the central bank steps up efforts to ease volatility
  • Bangko Sentral ng Pilipinas raised its forecasts for average inflation this year and next, with latest estimates showing price gains will breach the 2 percent to 4 percent target for two consecutive years, Assistant Governor Francis Dakila said
  • South Korean consumer confidence rose to 101.7 in September from 99.2 in August, first gain in 4 months
    • Trump said he sees no need to set a timetable for North Korea to abandon its nuclear weapons
  • Pakistan central bank raises key interest rate 1 percentage point to 8.5 percent Saturday. It’s by far Asia’s most aggressive interest-rate hiker this year as it grapples with a growing economic crisis

EMEA:

  • Turkey’s lira was the top performer the five days through Friday; Akbank TAS, the nation’s second-largest listed lender, refinanced a maturing foreign-currency loan, tempering concern that this year’s exchange-rate rout will fuel a debt crisis
    • Turkey’s consumer loans dropped the most since a banking crisis in 2001-2002. The decline came after loan rates at some banks rose to 40 percent and higher
    • Secretary of State Mike Pompeo said the U.S. may hold more talks with Turkey on detained American pastor Andrew Brunson and he could be released soon
    • President Recep Tayyip Erdogan said it’s up to the Turkish courts to decide on the release of Brunson and everyone should respect rulings of the judiciary, according to an interview with Reuters broadcast on Turkish TVs
    • Turkey’s Borsa Istanbul 100 Index climbed a 6th week; banks were prominent among the leading gainers as the currency crisis ebbed and the government reiterated its pledge of support
  • The rand was also among the week’s top performers; the senior leadership of South Africa’s ruling African National Congress will discuss an alleged plot to remove its president, Cyril Ramaphosa, according to three people familiar with the matter
    • Non-resident investors piled into South African bonds at the fastest pace in close to two months on Tuesday, even as a weekly bond auction failed to rouse investor appetite
    • Land reform can be positive in the long term if the government can carry it out while agricultural activity remains intact, according to Moody’s
    • South Africa’s FTSE/JSE Africa All Shares Index dropped and quarter as foreign investors ended the three months with a selling spree. Foreign outflows reached 12 consecutive days as of Thursday, the longest run since May
  • The ruble rose for a third week, trimming its quarterly loss; oil price of $100/bbl “wouldn’t reflect the supply-demand balance,” $70-80/bbl price level looks far more “balanced,” Russian Energy Minister Alexander Novak said
    • The U.S. Congress isn’t likely to pass any new sanctions on Russia, including proposals that would affect sovereign debt and energy projects, until after the November elections
    • Russia’s MOEX index extended its gains for a third week, closing out a 7.8 percent gain for the quarter in ruble terms. The advance was powered by oil and gas producers benefiting from record production levels and local-currency prices. Gazprom, Lukoil, Tatneft and Rosneft were among the leading gainers over the three months
  • Saudi Arabia, Qatar, United Arab Emirates, Bahrain and Kuwait will become eligible for inclusion in JPMorgan’s emerging-market bonds indexes starting at the end of January. The change will result in the risk weight for Asia to drop to 18 percent from 20 percent, while that of Latin America will drop to 33 percent from 37 percent
  • Ghanaian Finance Minister Ken Ofori-Atta said the country is preparing to sell $5 billion to $10 billion in century bonds by the end of the year
  • The Czech central bank lifted its benchmark rate by a quarter-percentage point to 1.5 percent, the sixth increase in just over a year; while economists and derivatives investors were betting on another hike in 2018, Governor Jiri Rusnok sent the koruna weaker with non-committal comments about whether that would happen
  • Poland’s WIG20 Index advanced for a second week, climbing 7 percent in the three months ended September, crowning the strongest quarter for the market since 1Q 2017 as investors were attracted by its promotion by FTSE Russell to developed from emerging-market status

Latin America:
  • The Brazilian real was little changed while the Ibovespa index fell; the latest election poll shows Worker’s Party candidate Fernando Haddad and former army captain Jair Bolsonaro advancing into the second round, with Haddad beating Bolsonaro 43 percent to 39 percent in the runoff
    • Central bank signaled it’s ready to tighten monetary policy in case inflationary pressure rises, according to the minutes from the last meeting
    • Brazil in August recorded its biggest foreign direct investment inflow in 19 months in a surprisingly strong jump
  • Mexico’s peso rose for a third week even as U.S.-Canada trade talks were still stalled, casting uncertainties over the future of Nafta
    • President-elect Lopez Obrador picks Jonathan Heath as Banxico’s deputy governor, replacing Manuel Ramos Francia starting in 2019
    • Nomination would tilt Banxico in a more dovish direction as Ramos Francia is a "clear hawk," Citigroup said in a client note
    • Mexico’s unemployment rate was at 3.47 percent in August vs estimate of 3.53 percent; July economic activity rose 3.32 percent, beating the estimate of 2.6 percent
  • Argentina has agreed to not let short-term interest rates fall below 60 percent until 12-month CPI expectations drop for at least two straight months, the IMF says
    • The nation’s central bank said it won’t intervene in the foreign exchange market if the peso trades between 34 and 44 per dollar and will adjust intervention zone by 3 percent every month
    • The Merval equity index fell more than 2 percent on the week in peso terms

Upcoming data:

Monday, Oct. 1Mexico, Poland, Czech RepublicSept. Markit PMI manufacturing
TurkeySept. Markit/ISO PMI manufacturing
Thailand, Poland, IndonesiaSept. CPI
Asian countries including Indonesia, Philippines, Thailand, IndiaSept. Nikkei PMI Manufacturing
South KoreaSept. trade
Tuesday, Oct. 2Czech Republic2Q GDP
BrazilAug. industrial production
Wednesday, Oct. 3PolandMonetary policy decision
TurkeySept. CPI, PPI
Thursday, Oct. 4MexicoSept. consumer confidence index, monetary policy decision
IndiaSept. Nikkei PMI
Friday, Oct. 5Hungary, ArgentinaAug. industrial production
IndiaMonetary policy meeting
South Korea, Taiwan, PhilippinesSept. CPI
MalaysiaAug. trade
BrazilSept. IBGE inflation
IndonesiaSept. foreign reserves

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