Lira Rallies Ahead of Turkey and U.S. Meeting: EM Review

(Bloomberg) -- Turkey’s lira led gains among emerging-market currencies, reaching its strongest level against the dollar in a month and posting a weekly gain of 3.3% ahead of a meeting on Monday between presidents Recep Tayyip Erdogan and Joe Biden. A gauge of developing-world currencies edged lower, while stocks posted its first weekly loss in four.

Highlights:

• Commerce ministers from China and the U.S. agreed to push forward trade and investment links in their first call since the start of the Biden administration. China’s exports continued to surge in May, while surging costs of imported commodities drove factory-gate inflation to its highest level since 2008
• Mexican dollar bonds gained as President Andres Manuel Lopez Obrador, known as AMLO, lost his super-majority in the lower house after midterm elections, dealing a blow to his chances of passing constitutional reforms to further his nationalist agenda. AMLO said he named long-time economic adviser and ally Rogelio Ramirez de la O as his finance minister, to replace Arturo Herrera, who will be nominated to head the country’s central bank
• Federal Reserve Chairman Jerome Powell and his colleagues appear to be winning over investors with the argument that the current surge in consumer prices won’t last. Treasury 10-year yields touched their lowest level in three months this week amid signs traders are further unwinding short positions in U.S. government debt despite a jump in consumer prices

Asia:

• China’s sovereign bonds have defied expectations for a selloff all year but their day of reckoning may be getting closer. Higher money market rates point to shrinking interbank liquidity, while local government debt sales doubled this week, hoovering up more funds
• Bank of Korea Governor Lee Ju-yeol said the central bank will seek to normalize its policy at an appropriate time as the economy’s recovery solidifies, prompting a flurry of early rate hike forecasts
• Thailand’s parliament voted in favor of a $16 billion borrowing plan to fund the government’s stimulus package

EMEA

• World powers and Iran will try reviving their landmark nuclear accord one last time before voters in the Islamic Republic head to the polls next week to elect a new president who’s likely to be less willing to make concessions to the West
• The International Monetary Fund said the Lebanese central bank’s decision allowing dollar depositors to withdraw funds partly in the U.S. currency risks fanning prices
• Poland’s central bank doubled down on its intention to keep interest rates at a record low despite the fastest inflation in a decade
• Russia sold $5 billion of U.S. currency from its oil fund in May as part of a drive to reduce exposure to the greenback and vulnerability to Western sanctions. Bank of Russia delivered its third straight increase in interest rates and said more monetary tightening will be necessary as it struggles to contain a spike in inflation

LatAm:

• Peru’s roller-coaster presidential election had another twist as a prosecutor seeks to detain candidate Keiko Fujimori for violating the terms of her bail just as she disputes the results of a tight runoff against Pedro Castillo, her leftist rival. Castillo had The central bank kept rates at 0.25% Thursday, but dropped its commitment to keep it there for “a prolonged period”
• Central banks in Mexico and Brazil are coming under growing pressure to raise interest rates, as inflation stands way above the target ceiling. Traders in Brazil’s swaps and currency markets are bracing for the country’s central bank to raise interest rates more than officials have so far acknowledged
• An early front-runner for Chile’s presidential vote in November is proposing a radical overhaul for one of South America’s richest countries, with higher taxes, a revamp of the pension system, more state involvement in the economy and regional cooperation to discourage companies from crossing borders for lower tax rates. Chile announced full lockdown in the capital city of Santiago and surrounding municipalities Thursday as the number of available hospital beds hits dangerously low levels and new cases remain high. The central bank signaled it will gradually pare back stimulus
• El Salvador became the first country to formally adopt Bitcoin as legal tender after President Nayib Bukele said congress approved his landmark proposal. It may imply a series of risks and regulatory challenges, International Monetary Fund spokesman Gerry Rice said. According to a Bloomberg Barclays index, Salvadoran bonds posted losses of 5.39% this week as of Thursday, the worst performance in emerging markets as fears mount over a delay of a program between the nation and the IMF.

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