EM Review: Wave of Rate Cuts, Trade-Deal Optimism Spurred Rally

(Bloomberg) -- Emerging-market currencies and stocks advanced last week as expectations the U.S. and China can sign a trade agreement as soon as November boosted appetite for riskier assets. A wave of rate cuts also helped lift growth-led assets, with Russia speeding up the pace of easing and Chile lowering borrowing costs as the worst civil unrest in three decades dimmed the outlook for the economy.

The following is a roundup of emerging-market news and highlights for the week ending Oct. 27.

Read here our emerging-market weekly preview, and listen to our weekly podcast here.

Highlights:

• President Donald Trump said China has indicated that negotiations over an initial trade deal are advancing, raising expectations the nations’ leaders could sign an agreement at a meeting next month in Chile
  • China said parts of the text for the first phase of a trade deal with the U.S. are “basically completed” as the two sides reached a consensus in areas including standards used by agricultural regulators
  • Chinese and U.S. officials will discuss plans for China to buy more American farm products in exchange for the removal of some planned and existing U.S. tariffs in talks on Friday, Reuters reported, citing unidentified people briefed on the talks
  • The U.S. and China are close to finalizing sections of the first phase of a trade deal that President Donald Trump and China’s Xi Jinping hope to sign at a summit in Chile next month, the Office of the U.S. Trade Representative said
  • China aims to buy at least $20 billion of agricultural products in a year if it signs a partial trade deal with the U.S., people familiar with the matter said
  • U.S. Vice President Mike Pence criticized China’s actions against protesters in Hong Kong while calling for greater engagement between the world’s two biggest economies, delivering a long-anticipated critique of Beijing’s human rights record as the two nations try to resolve their trade war
• People’s Bank of China Governor Yi Gang said the yuan is at an “appropriate level” and cross-border capital flows have stayed balanced since the currency weakened past 7 per dollar in early August
• Opposition candidate Alberto Fernandez swept Argentina’s presidential election on Sunday, ousting pro-market incumbent Mauricio Macri and tilting the nation back toward left-wing populism at a time of economic crisis
  • The central bank tightened limits on the amount of dollars savers can purchase after Fernandez won the presidency
  • READ: Argentina Investors Look Ahead After Fernandez Pulls Out Win
• Brazil’s Senate took the final step in the approval of a long-awaited pension reform that’s the centerpiece of President Jair Bolsonaro’s plans to cut government debt
  • Lawmakers on Wednesday gave the final go-ahead to legislation that will save public accounts approximately 800 billion reais ($198 billion) in a decade
  • The largest ETF tracking Brazilian stocks had its biggest daily inflow in eight months
  • Bolsonaro landed in China on a mission to strengthen relations with Beijing amid the looming question of whether the Latin American giant should allow Huawei Technologies Co. to build its 5G network
• Chilean markets were shaken by the worst civil unrest in 29 years as a wave of riots and demonstrations that brought Santiago to near a standstill left more than fifteen people dead and thousands arrested
  • What began as a protest against a 4-cent subway-fare hike quickly turned into an outpouring of broad discontent over economic inequality, pensions, health and education
  • President Sebastian Pinera has signed necessary decree to lift Chile’s state of emergency, presidency announced on Twitter
• Indonesia’s central bank cut its key interest rate for a fourth straight month to spur the economy amid a deteriorating outlook for global growth. Bank Indonesia lowered the seven-day reverse repurchase rate by 25 basis points to 5%
• The Philippine central bank will reduce the amount of fund lenders must hold in reserve by 1 percentage point to 14% in early December, Governor Benjamin Diokno said
• Turkey’s central bank delivered another interest-rate cut that exceeded forecasts after President Recep Tayyip Erdogan’s deal to secure a buffer zone in northern Syria eased concern over the fallout of his cross-border offensive
  • Trump said he is lifting recently imposed sanctions against Turkey after the country complied with a cease-fire agreement with Kurdish forces in Syria
• Chile’s central bank cut its benchmark interest rate for the third time in five months and said additional easing may be needed as the worst civil unrest in decades threatens to slow economic growth
• Lebanon’s central bank and commercial lenders will be the biggest contributors to the government’s plan to nearly wipe out its budget deficit next year -- providing an estimated $3.3 billion in savings in the battle to avert financial meltdown
• The U.K. Parliament blocked Prime Minister Boris Johnson’s plan to rush his Brexit deal into law, leaving proceedings in limbo

Asia:

• China’s base rate for new corporate loans stayed unchanged in October, defying expectations of a reduction as the economy grows at the slowest pace since the early 1990s
  • The nation’s central bank added 250 billion yuan ($35 billion) into the banking system, the largest amount in a daily open market operation since May
  • Chinese companies have borrowed a record $61 billion through syndicated loans in the offshore market in the first three quarters of the year, with private firms accounting for 60%, according to data compiled by Bloomberg. That’s up from 54% a year earlier
  • Of about 3,200 commercial bankers surveyed by the People’s Bank of China, 4.1% consider monetary policy “tight”
  • The Chinese government is considering a plan to replace Hong Kong’s Carrie Lam as chief executive, pro-establishment lawmaker Michael Tien said, in a potential strategy shift by Beijing as pro-democracy demonstrations continue to rock the Asian financial center
• South Korea is abandoning its developing-nation privileges at the World Trade Organization following allegations by the Trump administration that some countries were taking advantage of the status
  • The country’s export-dependent economy is facing a “grave situation” as the U.S.-China trade war and the spread of trade protectionism heap pressure on the global economy, President Moon Jae-in said
  • The economy grew at a slower pace in the third quarter. Gross domestic product increased 0.4% from the previous quarter
  • Exports during the first 20 days of October fell 20% from a year earlier, data from the Korea Customs Service showed
  • Japanese Prime Minister Shinzo Abe and South Korean premier Lee Nak-yon agreed they must work to ease the feud between the two neighbors that has spilled over into trade and security after their highest-level meeting in more than a year
• India is considering placing curbs on some imports from Turkey and Malaysia, in response to their leaders’ comments on the autonomy of Kashmir, people familiar with the matter said
  • The country will spend about 410 billion rupees ($5.8 billion) on two unprofitable state-run telecommunication companies in a bid to help the firms take on competition
  • The nation’s top court ordered eight telecom carriers, including Bharti Airtel Ltd. and Vodafone Idea Ltd., to pay the government as much as 920 billion rupees ($13 billion) in past dues
  • India’s central bank hasn’t sold any gold recently nor is trading in the metal, the monetary authority said in a tweet on Sunday
• Indonesian President Joko Widodo’s new cabinet is taking shape with some well-known business figures set to join his team as he pledges to put the world’s fourth most-populous country on path to become a $7 trillion economy by 2045
  • Widodo reappointed Sri Mulyani Indrawati as finance minister in a new cabinet. He asked the nation’s opposition leader and the founder of its biggest startup to join a revamped cabinet
  • Widodo ordered his ministers to identify a list of rules and regulations at regional and national levels hampering investment and public service
  • The country may widen its budget deficit to 2%-2.2% of gross domestic product this year as the government tries to counter a global slowdown, a Finance Ministry official said
  • Indonesia ruled out canceling planned auction of sovereign rupiah bond during the remainder of the year even after raising $2.1 billion from a global dollar and euro bond sale
  • The central bank will allow rupiah to strengthen in line with market mechanisms, according to Nanang Hendarsah, executive director for monetary management
• Thailand’s exports unexpectedly fell for a second month in September. Trade surplus was $1.28 billion, less than the projected $2.21 billion excess
  • The cabinet approves stimulus steps to boost the economy, Finance Minister Uttama Savanayana said
  • Emerging markets may need to follow moves by advanced economies “to avoid appreciation of their currencies,” Bank of Thailand Governor Veerathai Santiprabhob said
  • A further reduction in Thailand’s benchmark interest rate won’t help much in efforts to restrain the baht, a member of the nation’s monetary policy committee said
  • Trump is suspending some trade preferences for Thailand over concerns about worker rights
• Malaysia may become a target of sanctions as the export-reliant economy is caught in the crossfire of the U.S.-China trade war, according to Prime Minister Mahathir Mohamad
  • Representatives for Malaysia have discussed a penalty of around $2 billion-$3 billion in talks with Goldman Sachs Group Inc. for its role in the 1MDB scandal, according to people with knowledge of the matter
  • Consumer prices rose 1.1% in September from a year earlier, less than median estimate 1.3% gain and 1.5% increase in August
• The Philippine central bank doesn’t need to intervene in the currency market even after the peso climbed to a three-month high, said Felipe Medalla, a member of the policy-making Monetary Board
  • President Rodrigo Duterte will unveil a revised list of about 100 big infrastructure projects to be launched before his term ends in 2022, after some earlier projects were found to be unfeasible, an adviser said
  • The nation plans to raise $3.5 billion from overseas bond sales in 2020, including debt denominated in the dollar, yen, euro and yuan, Treasurer Rosalia de Leon said
  • Government spending rose in September at the fastest pace in more than a year, which economists say could spark a rebound in growth in the second half of 2019
  • GDP growth likely to accelerate to about 6.5% in 4Q on government spending, Christmas spending and benign inflation, Philippine central bank deputy governor Francis Dakila says in Manila briefing
• Taiwan’s export orders fell 4.9% on year in September, compared with 8.3% decline in August

EMEA:

• Russia and Turkey agreed to work together to take back large chunks of Syrian territory controlled by Kurdish forces once allied with the U.S., giving each country a bigger say in how postwar Syria will look
• The Bank of Russia sped up the pace of monetary easing with a rare 50 basis-point cut to the interest rate and said it is considering more reductions after inflation showed signs of dropping well below a 4% target
• Poland’s nationalist ruling party asked the Supreme Court for a partial recount in this month’s elections after it lost its majority in the Senate
  • The nation’s plan for its first post-communist balanced budget came under threat after factions of the ruling party quarreled over their intentions to juice the economy with post-election stimulus
• One of two central bankers who voted to raise interest rates in the Czech Republic just last month signaled he may be ready to change his mind. The koruna weakened against the euro
• Lebanon’s emergency proposals in response to mass protests risk undermining the nation’s currency peg and confidence in the ability to repay debts, Moody’s Investors Service said
  • Followers of Lebanon’s Iranian-backed Hezbollah took to the streets Friday, waving the armed movement’s yellow flags and defending its leader against criticism after nine days of nationwide protests demanding the ouster of the political elite
  • The nation’s Eurobond yield curve was increasingly inverted as the government struggled to quell nationwide protests against worsening economic conditions and the perceived corruption of the ruling class
  • A state prosecutor accused former prime minister Najib Mikati -- Lebanon’s richest man -- and the country’s biggest bank of making illicit gains from a subsidized housing program, in the first corruption case filed since anti-government protesters took to the streets a week ago
• Saudi Arabia raised $2.5 billion of Islamic bonds in its first international debt sale since a missile and drone attack on its oil industry
  • Saudi Aramco is pushing to complete its initial public offering this year by relying more on local investors, after international money managers’ skepticism triggered a delay, people with knowledge of the matter said
• South Africa’s core inflation rate fell to the lowest in almost eight years in September, leading to a decline in the annual headline reading, which could raise pressure on the central bank to cut its benchmark rate
  • Tuesday’s Treasury auction was the strongest in eight weeks
  • South Africa’s opposition Democratic Alliance is imploding, leaving the ruling African National Congress secure in power even as the economy stagnates
• Angola’s central bank kept its benchmark interest rate unchanged and announced that it will let the currency float freely
• Namibia’s central bank held its benchmark interest rate to maintain the currency’s peg to South Africa’s rand despite forecasts that the economy is set to shrink for a third straight year

Latin America:

• Copper mining operations in Chile were disrupted and most ports were halted as workers joined anti-government protests

• Brazil’s annual inflation rate fell below the floor of the central bank’s target range in mid-October, giving policy makers more leeway to press ahead with borrowing cost cuts

  • Economists lowered their inflation forecasts for both this year and next for the fourth straight week while also cutting estimates for the key rate in December as the central bank signals further easing ahead
  • The government is expected to announce measures to boost the labor market in the first week of November
  • Bolsonaro appointed an experienced career diplomat as Brazil’s ambassador to the U.S., ending months of fruitless efforts to give the job to his own son
  • Supreme Court suspended session that could potentially result in former President Luiz Inacio Lula da Silva leaving prison
• Mexico’s inflation rate is poised for a second straight month at the target while a key gauge of economic activity unexpectedly fell, according to data released on Thursday that bolsters forecasts for steep interest rate cuts
  • U.S. House Ways and Means Chairman Richard Neal said progress was made in USMCA talks
  • Mexico Undersecretary of Foreign Relations Jesus Seade said USMCA deal could be approved in a matter of months
  • Pemex imported less gasoline and diesel in the second quarter as its refineries produced more fuel and the government cracked down on fuel theft
  • Retail sales rose 2.6% in August, exceeding forecast
• Fernandez committed on Wednesday to protecting citizens’ savings
  • The unofficial peso exchange rate fell to its weakest in seven years of record-keeping as investors count down the days until the the nation’s presidential election
  • Argentina’s central bank is studying alternatives to minimize FX volatility and the loss of reserves due to the uncertainty caused by the elections, according to a person with direct knowledge of the matter
• The final tally in Bolivia’s election shows that Evo Morales got enough votes to win a fourth term as president, but opponents are disputing the result while the European Union and the Organization of American States called for a second round
• Costa Rica Finance Minister Rocio Aguilar resigned on Wednesday after the Comptroller General recommended her suspension, casting doubt on the future of a reforms that helped restore investor confidence in the country

--With assistance from Selcuk Gokoluk, Alec D.B. McCabe, Andres Guerra Luz and Carolina Wilson.

To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Netty Ismail in Dubai at nismail3@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Alex Nicholson

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With assistance from Bloomberg