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EM Review: Phase-One Trade Deal Hope Fuels Asset Rally

Published 01/12/2020, 09:39 PM
Updated 01/13/2020, 12:15 AM
© Reuters.  EM Review: Phase-One Trade Deal Hope Fuels Asset Rally
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(Bloomberg) -- Emerging-market stocks and currencies climbed for a sixth consecutive week to 19-month highs as risk assets started 2020 on a positive note. Investor optimism for a signed phase-one U.S.-China trade deal offset the sudden escalation -- then easing -- of tension between the U.S. and Iran. The Middle Eastern nation attacked American troops based in Iraq in retaliation for the killing of a senior commander, though no one was injured in the strikes.

The following is a roundup of emerging-markets news and highlights for the week ending Jan. 10.

Highlights:

  • President Donald Trump backed away from the precipice of war with Iran after the Islamic Republic attacked U.S. bases in Iraq with a barrage of missiles that the Pentagon believes weren’t intended to cause casualties
    • The Boeing (NYSE:BA) Co. jet that crashed near Tehran Wednesday was probably hit by an Iranian missile fired unintentionally, Canadian President Justin Trudeau said; U.S. intelligence officials have come to the same conclusion, according to two people familiar with the evidence
    • Ali Abedzadeh, head of Iran’s Civil Aviation Organization, said “it’s not possible” for an Iranian rocket to have hit the plane
    • In televised remarks to the nation on Wednesday, Trump defended the U.S. strike on a top Iranian general that touched off the missile barrage and said he would impose new sanctions on Tehran
    • The U.S. House of Representatives voted Thursday to limit Trump’s authority to strike Iran, a mostly symbolic move Democrats say defends Congress’s constitutional powers but Republicans say endangers national security
  • China announced that Vice Premier Liu He will travel to Washington to sign the first phase of the trade deal with the U.S. this week, locking in Beijing’s commitment to a ceremony already announced by Trump
    • The U.S. and China are finalizing a bevy of long-running corporate deals ahead of the signing
  • Federal Reserve policy is appropriate amid solid U.S. economic growth but there is a risk that inflation continues to fall short of the central bank’s 2% target, officials said
    • A U.S. jobs report dragged on the dollar and sent mixed signals on the strength of the economy, though it did little to alter investors’ views on the Fed’s next steps
  • Taiwan President Tsai Ing-wen of the Democratic Progressive (NYSE:PGR) Party won a second term in a landslide victory over her opponent, Han Kuo-yu of the Kuomintang, and her party maintained its majority in the legislature. That means Chinese President Xi Jinping’s goal of bringing Taiwan under his control moved further out of reach as the island re-elected a president who has vowed to defend its sovereignty
Asia:

  • China’s consumer inflation steadied in December while factory price declines moderated, leaving room for monetary easing to cement a recent stabilization in economic growth
    • China on Monday released Caixin PMI composite and services measures for December. Both indexes were lower than the previous month, but still showed expansion
    • China’s central bank pledged more financial support for small and micro businesses while saying it plans to stick to a prudent monetary policy stance this year
    • China has included the Internet industry for the first time in an envisioned overhaul of its anti-monopoly laws, potentially giving regulators the power to rein in the country’s increasingly dominant technology giants
  • Thailand’s central bank will take further steps to ease restrictions on capital outflows in coming months as it tries to curb gains in the baht, Governor Veerathai Santiprabhob said
    • The Bank of Thailand will aim to prevent the baht from strengthening past 30 per dollar, said Kanit Sangsubhan, one of the seven members of the monetary policy committee
    • Thailand’s trade surplus with the U.S. exceeded $20 billion, raising the chances it will be added to the U.S. Treasury’s watchlist of currency manipulators
  • Indonesia raised $2 billion from the international capital markets via 10-year and 30-year dollar bonds. It also sold a 1 billion euro seven-year note
    • The nation’s central bank expects the rupiah to notch up further gains after it rallied to the highest level in almost 21 months on the improved outlook for Southeast Asia’s largest economy
  • South Korea’s foreign-exchange reserves increased to $408.8 billion at end-December, compared with $407.5 billion the previous month
    • The government will take measures “preemptively, promptly and precisely” in markets if needed in reaction to geopolitical issues in the Middle East, Finance Minister Hong Nam-ki said
  • Malaysian prosecutor seeks to impeach former premier Najib Razak from being a witness in the trial involving a former unit of 1MDB due to differences in his testimony compared with his statement to the Malaysian Anti-Corruption Commission, Deputy Public Prosecutor V Sithambaram said in court
    • Foreign ownership of Malaysian government and corporate bonds and bills rose to 204.7 billion ringgit ($50 billion) in December, highest since April 2018
  • India’s budget deficit could widen to 3.8% of gross domestic product in the current fiscal year, breaching a target of 3.3%, according to a senior official
    • The economy is on track for its slowest growth since 2009, weighed down by a shadow banking crisis, weak investment and a slump in spending. Gross domestic product will grow 5% in the year through March 2020, the Statistics Ministry said in a statement
    • India’s monetary authority allowed banks to offer foreign-currency transactions outside of local market hours, a move aimed at boosting trading volumes at home
    • Indian companies have started the year with more debt offerings overseas, after a record issuance in 2019 driven by stronger borrowers turning abroad as local credit markets struggled
    • India, the world’s biggest palm oil buyer, restricted imports of the refined palm oil and palm olein on Wednesday to support the domestic processing industry
    • India opened up coal mining to a larger pool of investors and eased environmental norms as it seeks to boost output and meet growing energy needs
    • Masked assailants stormed India’s Jawaharlal Nehru University in New Delhi Sunday night in a violent attack on students that risked escalating protests against Prime Minister Narendra Modi’s government
  • The Philippines may cut its key interest rate in the first quarter of the year, with a pickup in December inflation and heightened Middle East tensions unlikely to derail the central bank’s plan to unwind past aggressive monetary tightening, Governor Benjamin Diokno said
    • Dubai crude oil prices will have to hit $90 per barrel on a sustained basis before it could have an impact on the Philippine central bank’s inflation outlook, Diokno tells ABS-CBN News Channel
    • Philippine President Rodrigo Duterte is giving Manila water providers the option of accepting new contracts written by the government -- or see the state take over in areas where they operate
  • Bids in Taiwan’s auction of fifth-generation networking airwaves have exceeded NT$100 billion ($3.3 billion), a sign of robust demand as carriers race to deploy new wireless networks for applications including smart manufacturing and autonomous cars
EMEA:

  • Turkey will work to defuse tensions between the U.S. and Iran because it has the ability to talk to both sides, President Recep Tayyip Erdogan said
  • With the world on edge over rising tensions in the Middle East, one leader seems unfazed: Russia’s Vladimir Putin. The Russian president arrived in Damascus on Tuesday in just his second visit to Syria since the start of the country’s civil war nearly nine years ago
  • Romania extended a year-and-a-half pause in interest rates as it weighs above-target inflation against a weakening economy
  • Poland extended an unprecedented period of record-low borrowing costs, looking past a jump in inflation that economists described as “shocking” and “astonishing”
  • Russia officially opened its TurkStream natural gas pipeline on Wednesday, further diversifying export routes to Europe amid a backlash from the U.S.
  • Middle Eastern markets can hardly be accused of complacency over the latest surge in regional tensions, even if global investors are taking a more relaxed view of events
  • Abu Dhabi sovereign wealth fund Mubadala more than halved its shareholding in Italian bank UniCredit SpA as the holder of about 6% of the world’s oil reserves sells stakes in overseas assets
  • The World Bank is the first key institution to cut its economic growth forecast for South Africa to below 1% for 2020 due to electricity supply concerns
    • Sentiment in the manufacturing industry may worsen due to power cuts; a gauge tracking expected business conditions in six months’ time, as part of Absa Group Ltd.’s Purchasing Managers Index, fell to 45.9 in December from 47.4 in previous month
    • Business confidence slumped to the lowest in 34 years in 2019 as the country faced power cuts, delays in policy implementation, deteriorating public finances and the risk of losing its only remaining investment-grade credit rating
  • Ghana beat the government’s inflation target for 2019 as food-price growth eased. Annual inflation slowed to 7.9% in December from 8.2% in November
  • Angola’s central bank ordered state-owned lender Banco de Poupanca e Credito and Banco Economico to raise their capital levels to comply with the minimum requirement after carrying out an assessment of the industry
Latin America:

  • Brazil posted a larger-than-expected drop in industrial production in November, pointing to a bumpy recovery ahead for Latin America’s largest economy
    • Inflation ended 2019 above the official target, reducing bets that the central bank would extend its record-breaking monetary easing cycle with one additional rate cut
    • The nation’s stellar 2019 stock-market rally has yet to sway foreign investors, who pulled 4.7 billion reais ($1.15 billion) out of local equities in the year, according to data from the stock exchange
    • A spokesman for President Jair Bolsonaro said he isn’t planning a new surgery, but would cancel a trip to Davos after being discharged from the hospital in late December
    • IHS Markit’s composite PMI gauge declined to 50.9 in December, versus 51.8 a month earlier. A second-tier inflation gauge accelerated to 7.70% from a year earlier, missing expectations
  • Argentina’s new central bank president, Miguel Pesce, pledged to further cut interest rates to boost a free-falling economy

    • Buenos Aires Province held a phone call with holders of bonds due 2021 to discuss temporary financial relief for the province
    • Buenos Aires province bonds leaped Friday to their highest since Aug. 12 after La Nacion newspaper said the government would grant financial assistance to the cash-strapped province, citing an unidentified person close to the administration.
    • S&P Global Ratings corrected a Dec. 30 upgrade of Argentina’s credit rating, saying it incorrectly applied its own criteria by assigning the nation a CC rating instead of CCC-, one step higher
    • A U.S. judge dismissed Aurelius Capital Management’s lawsuit claiming Argentina failed to properly calculate when payments on securities linked to economic growth were triggered
    • Argentina transferred $3.24 billion from central bank reserves to the Treasury to pay off debt, according to an official gazette
  • Mexico closed 2019 with the second-lowest year-end inflation rate in at least five decades amid a stalled economy
    • Finance Minister Arturo Herrera told reporters that Mexico paid about $1 billion for hedging its oil exports for this year
    • Mexico sold $2.3 billion of debt Monday at above the initial pricing
  • Chilean inflation accelerated less than expected in December, with price-growth hitting the central bank’s 3% target after a wave of social unrest disrupted supply chains
    • The outbreak of mass unrest in Chile will slash the government’s 2020 revenues by $3 billion, according to a top budget official
    • December trade surplus came in at $1.46 billion, beating estimates
    • Codelco priced a $2 billion debt offering, taking advantage of favorable debt market conditions
  • Peru’s central bank kept borrowing costs unchanged at the lowest level since 2010 as it looks for evidence the economy is rebounding from a slump in growth
(Corrects to say Chinese Vice Premier Liu He will travel to Washington this week in second bullet under highlights section.)

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