EM Review: Risk Rally Stalled Amid Fears of Second Wave of Virus

(Bloomberg) -- Emerging-market stocks and currencies posted their first weekly declines in a month last week amid concern a second wave of coronavirus infections is gaining ground in America. The Federal Reserve warned the road to a full U.S. recovery will be a long one, outweighing optimism surrounding its commitment to keep pumping stimulus into the economy.

The following is a roundup of emerging-market news and highlights for the week through June 15:

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Highlights:

• A second wave of coronavirus cases is emerging in the U.S., raising alarms as new infections push the overall count past 2 million Americans; The S&P 500 slumped almost 6% Thursday following a spike of Covid-19 cases in several U.S. states
  • China is racing to control a new outbreak in Beijing that reached nearly 100 infections over the weekend; Beijing locks down 10 residential compounds in northwestern Haidian district from Monday
  • South Korea reported 37 more coronavirus cases in 24 hours, while Thailand reports no new cases after easing lockdown
• Fed Chair Jerome Powell said he isn’t even giving a passing thought to the possibility of raising borrowing costs. He expressed concern about the disproportionate loss of jobs among women, black and Latino workers as a result of the virus
• The global economy will contract the most since World War II this year and emerging nations’ output will shrink for the first time in at least six decades due to the Covid-19 pandemic, the World Bank said

• China’s economy continued to inch out of the coronavirus slump in May, though a reliance on industry amid sluggish consumer demand underlines the fragility of the recovery as further infections appear

  • China’s factory deflation deepened in May and consumer price gains slowed, signaling that the recovery from the first quarter coronavirus slump remains uncertain
  • China continues to buy American soybeans despite rhetoric from President Donald Trump over Hong Kong
  • The U.S. will exempt more Chinese imports from tariffs, including certain television LCD main-board assemblies and lithium-ion batteries
• Emerging market exchange-traded funds listed in the U.S. received $1.87 billion in the week ended June 5, the first weekly inflow since February
• Brazil recorded its deepest deflation in more than 20 years, clearing the way for the central bank to cut interest rates again
• Argentina extended a deadline for creditors to accept a debt restructuring proposal for the fourth time as the two sides edge toward a deal; President Alberto Fernandez said it’s working on an improved offer to bond holders
• South African mining output slid the most since at least 1981 in April, when the first full month of restrictions to curb the spread of the coronavirus pandemic brought almost all economic activity to a halt
• Ukraine cut interest rates to the lowest level since leaving the Soviet Union in 1991 after getting the long-awaited green light for $5 billion of foreign aid
• Chile’s health minister resigned Saturday after new coronavirus cases and deaths reached a record in the past few days; government reached a deal with opposition lawmakers to pass a third stimulus package, worth as much as $12 billion

Asia:

• China’s employment outlook will deteriorate in the third quarter because of the disruption to global business, a private survey showed

  • China’s crude imports soared to a record last month, while car sales rose for the first time in almost a year
  • China has agreed to delay debt repayments for low-income countries
• North Korea said it was shutting a liaison office it shares with South Korea and severing communication over a leaders’ hot line; it accused the U.S. of breaking promises it made at a summit two years ago
  • South Korea will continue to comply with inter-Korean agreements for peace and prosperity on the Korean peninsula
  • South Korea’s jobless rate jumped to a 10-year high
  • Iran is escalating its pressure on South Korea to release billions of dollars of oil-export revenue
  • Bank of Korea will maintain an accommodative monetary policy, according to a report to be submitted to parliament
  • South Korea’s Health Minister Park Neung-hoo says risks of coronavirus infections in and around Seoul are rising

• India’s coronavirus infections have surged to overtake the number of recorded cases in the U.K., making it the world’s fourth-worst affected nation

  • Country will likely raise sugar output next season as production in key growing states increases
  • Borrowing costs for India’s top-rated shadow financiers declined last month
• Bank Indonesia governor sees room for the rupiah to gain further; central bank seeks to stem weakness through intervention
  • Indonesia’s move to gradually ease social distancing rules is to ensure an early recovery in the economy, according to a senior minister; country will allow airlines to carry more passengers as death toll hits 2,000
• The Philippine central bank supports carefully coordinated action with the government including economic stimulus bills to avert a prolonged contraction caused by the coronavirus outbreak, Governor Benjamin Diokno said
  • Diokno said it may be better to hold on to the current key rate as monetary authorities assess the need for further policy easing
  • The Philippine central bank will resume the weekly offer of 14-day term deposits and increase the volume in its reverse repurchase facility as market liquidity returns to normal
• A Thai minister said the central bank must ensure the baht isn’t an economic obstacle; a senior director at Bank of Thailand said policy must stay accommodative
• Malaysian stocks rose to the highest since January as the country prepares to further ease its lockdown while expanding stimulus measures
  • Palm oil stockpiles in Malaysia posted an unexpected decline

EMEA:

• The International Monetary Fund’s executive board approved $5 billion of aid to Ukraine, the culmination of months of talks that grew more urgent as the coronavirus pandemic struck; it warned that Ukraine’s recovery from its coronavirus-induced slump may take four years
• Turkey may need more than a new clearing house to replicate Russia’s success in luring foreign investors into its local-currency bond market
• Eastern Europe governments have already issued as much euro-denominated debt this year as they did in all of 2018 and 2019. Croatia’s current offering of 2 billion euros of 11-year bonds takes the record tally to 33.9 billion euros ($38.3 billion)

• Poland’s Prime Minister Mateusz Morawiecki said he is optimistic the economy will perform better than expected by analysts this year, thanks in part to government relief efforts

  • Poland halted work in 12 coal mines after one of the biggest spikes in new coronavirus cases in the European Union raised questions about the government’s handling of the pandemic
• Three years after being isolated by its Gulf Arab neighbors, Qatar also stands apart in the currency market. Its peg against the dollar has been the only one in the region that hasn’t come under pressure
• Kuwait will no longer hire expatriates for jobs in its oil sector as it moves to reduce the number of foreigners in the country
  • Qatar told government-funded entities to cut spending on non-Qatari staffers’ wages as it tries to shore up its finances to cope with the impact of the coronavirus

• The United Arab Emirates expects its non-oil economy to contract 4.1% this year due to the coronavirus, with a sharper slowdown in the second quarter before a gradual recovery through the rest of the year, the central bank said

  • A gauge of business conditions in Dubai bounced back to the highest since the coronavirus dragged the economy into a downturn, even as weak demand still stands in the way of a recovery
• A rising debt bill in Africa is wrestling away funds needed for infrastructure and damping hopes of a speedy recovery from the economic fallout of the coronavirus
• Ghana’s annual inflation rate rose to over 11% for the first time since 2017 as food-price growth surged, limiting room for the central bank to stimulate the economy
• Nigeria will implement all of the oil-production cuts it agreed with OPEC+ by mid-July at the latest, the head of its state energy company said
• East African finance ministers will have to strike a balance between spending to rebuild economies battered by the coronavirus and burdening their already heavily indebted nations with more loans when they present 2020-21 spending plans
• Uganda has started some talks with creditors for debt relief
• Zimbabwe eased restrictions on movement implemented in March to curb the spread of the coronavirus pandemic

Latin America:

• Inflation is in retreat across Latin America, creating space for policy makers to provide even more stimulus for their economies hard hit by the pandemic
• A judge in Brazil’s top court ordered the health ministry to resume publication of detailed reports on the coronavirus outbreak amid accusations President Jair Bolsonaro’s administration was trying to hide the numbers
  • Federal police are carrying out an investigation into the governor of the Amazonian state of Para for alleged fraud in the acquisition of respirators
  • Brazil’s Supreme Court began to rule whether the probe on fake news that reached Bolsonaro’s allies is legally valid, while the electoral court delayed a decision on two cases involving the President and his running mate in the 2018 election

• Argentina’s officials may offer warrants linked to the resource-rich nation’s agricultural exports to close the gap with top creditors in debt restructuring talks, according to people familiar

  • Economy Minister Martin Guzman said the country will improve its debt restructuring proposal to bondholders in coming “days or weeks” and this will be the government’s last offer
  • Investors holding Argentina CDS will receive about 68.5% of the amount covered by the instruments
  • Consumer prices rose at a relatively slow pace in May
  • Argentina plans to seize crop trader Vincentin SAIC, a move that is facing resistance from the agriculture industry and businessmen
• Mexico’s industrial output fell by a record in April and consumer prices rose less than expected in May, bolstering the case for more monetary easing
  • Pemex is said to be suspending contracts with service providers and suppliers, triggering thousands of job losses
  • Mexico’s government registered to sell as much as $15 billion of debt securities and warrants
  • Senate Majority Leader Ricardo Monreal is proposing a merger of the energy, antitrust and telecommunications regulators
• Colombia is analyzing partial withdrawals of worker pension savings, Finance Minister Alberto Carrasquilla said
  • Nation’s debt expected to rise to 60% to 65% of GDP, he said, while industrial production fell about 30% in April
• Chile’s government extended quarantines as virus fatalities rose
• S&P cut Costa Rica’s foreign and local currency sovereign credit rating to B from B
• Peru’s central bank held borrowing costs near zero for a second month as part of a push to get cheap credit to companies facing what may be the deepest economic slump in more than a century

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