Stocks Get a Lift From China Easing, Fed Flexibility: EM Review

(Bloomberg) -- Emerging-market stocks and currencies closed out the first week of 2019 on a high note, both posting the biggest one-day gains in a month Friday, after China moved to loosen monetary conditions and the Federal Reserve signaled flexibility on the outlook for rates.

Highlights:

• Optimism spread across financial markets Friday after data showed a spike in U.S. December hiring and Fed Chair Jerome Powell said the central bank’s policy isn’t set it stone as officials are “listening carefully” to the market
• The People’s Bank of China lowered the required reserve ratio for lenders by 1 percentage point, a move that will release about $117 billion of liquidity. China will make full use of RRR and targeted RRR tools, Premier Li Keqiang said before the announcement
• Earlier in the week Apple Inc. cut its revenue outlook for the first time in almost two decades, citing weakness in the Chinese economy as one of the reasons
• Deputy U.S. Trade Representative Jeffrey Gerrish will lead a U.S. delegation for trade talks with China on Jan. 7 and 8, China’s commerce ministry said in a statement. It will be the first face-to-face negotiations since Presidents Donald Trump and Xi Jinping agreed to a 90-day truce in their trade war last month
• Factory conditions across some of Asia’s most export-oriented economies slumped in December, hit by the U.S.-China trade war and a fading technology boom
• Brazil’s real was at the forefront of emerging-market gains for the week and the benchmark stock index closed at a record high as investors greeted the start of Jair Bolsonaro’s presidency, with his economy minister vowing a sweeping overhaul
• Turkey’s lira was among the worst performing emerging-market currencies as it tumbled in early Asian trading on Thursday in what traders said was an apparent “flash crash” triggered by algorithmic-platform pricing amid thin liquidity

Asia:

• Kim Jong Un used his New Year’s address to issue a pointed warning to Trump, saying North Korea would take a “new path” in nuclear talks if the U.S. doesn’t relax economic sanctions
• Indian Prime Minister Narendra Modi’s party, which recently lost in key state votes, is said to be preparing to unveil a farm-relief package before general elections due by May. The prospect of substantial aid when tax and asset sales collections are trailing estimates is stoking fears India may miss its fiscal deficit target
• India’s central bank will permit lenders to restructure stressed loans to small companies, breaking from a five-year-old policy of eschewing corporate debt overhauls. The move is likely to foster a lack of discipline among borrowers, according to India Ratings and Research Pvt., a Fitch group company
• After a year fighting an emerging-market rout, Indonesia’s central bank is signaling it’s not yet ready to take its foot off the interest-rate pedal in 2019. Indonesia sold the most bonds in three years in its debut auction for 2019
• Thailand’s election set for Feb. 24 could be delayed because of the royal coronation in early May, said Deputy PM Wissanu Krea-ngam
• President Xi suggested mainland China and Taiwan enter “in-depth democratic consultations” and aim for unification, the clearest sign yet that he wants to settle a 70-year dispute during his tenure
• Philippine December inflation was weaker than all analysts expected

EMEA:

• South African Reserve Bank Deputy Governor Francois Groepe resigned, leaving only five people on the rate-setting panel
• Turkish inflation slowed for a second month as the impact of higher borrowing costs became more visible across the economy. Consumer prices rose 20.3 percent in December from a year earlier, compared with 21.6 percent in November. The nation’s trade deficit narrowed 90 percent in November from a year earlier to $651 million
• Poland’s manufacturing performance worsened more than expected in December as fading demand from abroad weighed on exports, with a PMI dropping to a six-year low of 47.6
• Sudan’s central bank governor said the country is seeking funding from unidentified friendly nations to ease its economic crisis, as protests continue against President Omar al-Bashir’s government
• The Democratic Republic of Congo’s Monetary Policy Committee kept the central bank’s base rate unchanged at 14 percent

Latin America:

• Brazilian Economy Minister Paulo Guedes outlined how the new administration will slim down government by slashing pension spending, selling state assets and simplifying a complex tax system
• A board member of Mexico’s central bank warned the nation’s credit rating could suffer a negative revision that would lead to higher costs to serve public debt
• Argentina’s central bank said it expects a trend of slower inflation to continue and that it will maintain caution in its foreign-exchange intervention strategy
• Venezuela, once Latin America’s biggest oil exporter, ended 2018 with a whimper as annual crude shipments slumped to a 28-year low
• Peruvian President Martin Vizcarra said Brazilian construction firm Odebrecht should no longer operate in the country after a sprawling corruption scandal. The attorney general later reversed a decision to dismiss top prosecutors on the case

--With assistance from Ben Bartenstein, Dana El Baltaji and Brendan Walsh.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net;George Lei in New York at glei3@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Andrew Janes, Robert Brand

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