EM Review: China Data Supported Risk Taking on Trade Deal Boost

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EM Review: China Data Supported Risk Taking on Trade Deal Boost

(Bloomberg) -- The boost provided by the phase-one trade deal between the U.S. and China reverberated through markets for one more week, sending indexes of emerging-market currencies and stocks to the highest levels in at least five months last week. The approval of President Donald Trump’s impeachment by the U.S. House of Representatives had little impact on investor optimism with the trade accord and was offset by stronger Chinese economic data.

The following is a roundup of emerging-markets news and highlights for the week ending Dec. 22.

Highlights:

The pickup in China’s economy in November adds to the optimism from the trade deal, though plenty of downside risks remain. Industrial output and private consumption were both much stronger than expected, with production jumping 6.2% from a year earlier and retail sales climbing 8%. At the same time, fixed-asset investment in the first 11 months of this year grew at 5.2%, the slowest pace since at least 1998

Growth will likely be 6.1% this year and won’t drop below 6% in 2020, according to a former central bank adviserThe trade agreement between China and the U.S. is expected to boost China’s economic growth to around 6% next year, up from International Monetary Fund’s previous estimate of 5.8% made in October, IMF Managing Director Kristalina Georgieva told CaixinREAD: Economists Boost China Outlook on Trade Deal, Survey ShowsChina will waive tariffs on some U.S. chemical products and unveiled a second list for exemptions from the first batch of trade war tariffs, State Council Tariff Committee saidThe U.S. House of Representatives impeached President Donald Trump on charges of abuse of power and obstructing Congress, the culmination of an effort by Democrats that further inflamed partisan tensions in Washington and deepened the nation’s ideological divideTrump laid out a blistering attack against the vote, saying the party showed “deep hatred and disdain for the American voter” and would pay for it in the 2020 electionThe Senate sent Trump two spending bills Thursday that would provide $1.4 trillion to fund the U.S. government through September and avoid a shutdownU.S. Treasury Secretary Steven Mnuchin said the phase-one deal is going through a technical and legal review, and will be released and signed in early JanuaryThe European Union accused China of dragging its feet on market-opening pledges, throwing into question both sides’ much-touted aim to reach an investment agreement next yearTrump’s top envoy to North Korea countered Kim Jong Un’s threat of a Christmas provocation with a call for more nuclear talks to usher in a “season of peace”India’s Home Minister Amit Shah defended his government’s new religion-based citizenship law as he addressed business leaders for the first time since protests against the legislation erupted across the countryThe top court agrees to hear petitions on the new lawREAD: India Protests Show Modi’s Hardline Agenda May Hurt EconomyThousands defied a ban on public protests across Indian cities, risking arrest to express their anger against the lawU.S. Defense Secretary Mark Esper said Turkey’s threats to close two critical NATO installations if it’s sanctioned for growing military ties to Russia raise questions about the country’s commitment to the Western allianceMexico’s central bank cut its key interest rate for a fourth straight decision to 7.25%, as expectedBank of Russia Governor Elvira Nabiullina hinted she may take a breather after delivering five consecutive rate cuts, potentially putting the brakes on a rally in Russian assets this yearQatar isn’t currently in talks with the United Arab Emirates over mending a 30-month regional diplomatic and economic rift, Qatari Foreign Minister Mohammed bin Abdulrahman Al Thani saidArgentina will delay payments on its dollar-denominated notes known as Letes maturing as early as Friday until Aug. 31, 2020, according to a decree published in the official gazetteInflows to emerging-market stock and bond exchange-traded funds accelerated

Asia:

China’s central bank injected the most liquidity via open-market operations on Thursday since January, in a push to ensure ample cash supply ahead of seasonal tightness at year-endOne-year prime rate remains unchanged at 4.15% in DecemberSix privately owned companies in one of China’s wealthiest provinces have defaulted on their debt or come perilously close in the last three monthsMa Jun, an external adviser to the People’s Bank of China monetary policy committee, said in an interview with Securities Times the government could allow so-called local-government financing vehicles with strong fundamentals to take over weaker counterparts including those in other provincesChina calls for more trade cooperation with Japan and South Korea. The three countries in east Asia should also work together against unilateralism and trade protectionism, China’s Commerce Minister Zhong Shan saidThe Bank of Korea’s current 1.25% rate isn’t accommodative enough considering that the trend of slowing inflation is likely to continue into the new year, said a board member, according to minutes of the Nov. 29 meeting where the rate was heldThe central bank will maintain an accommodative stance in monetary policy in an effort to raise inflation to its target level, Governor Lee Ju-yeol saidThe government cut its growth forecasts for this year and next, but signaled it sees the economy as probably having bottomed in 2019 with the slowest expansion in a decadeThe nation will issue up to $1.5 billion of FX stabilization bonds in 2020 if necessary, the finance ministry saidJapan and South Korea agreed to continue negotiations on export controls after a day of talks aimed at resolving one of an array of issues that have shaken the relationship between the two U.S. allies. President Moon Jae-in and Japanese Prime Minister Shinzo Abe will meet for bilateral talks in China on Dec. 24India’s central bank Governor Shaktikanta Das said there’s more room for easing monetary policy, but a lot depends on how these actions are timed. Separately, Das said economic conditions were apt for the federal government to invoke a clause that allows the budget deficit to deviate as much as 0.5% of GDP from targetThe country has almost sorted U.S. trade issues, Commerce Minister Piyush Goyal saidThe Bank of Thailand held its benchmark rate steady at an all-time low at 1.25% and cut its forecasts for economic growth, saying it was gauging whether further efforts were needed to restrain the local currencyThe central bank remains worried about baht’s strength, is monitoring impact of recent steps and will assess if it needs to do more, Assistant Governor Titanun Mallikamas saidThe Bank of Thailand has more tools to help temper the baht, Deputy Prime Minister Somkid Jatusripitak saidThailand is considering making it easier for foreign issuers of baht-denominated bonds to take the proceeds out of the country, as a way of restraining the currency, said Patricia Mongkhonvanit, director general of the Public Debt Management Office in the Finance MinistryIndonesia’s central bank kept the seven-day reverse repurchase rate unchanged at 5% as expectedThe country’s trade deficit blew out to $1.3 billion in November as imports of consumer goods surged and exports contracted for a 13th straight monthBudget deficit was at 2.29% of gross domestic product as of November and the shortfall is seen at between 2.21% and 2.22% of GDP by year-end, according to Finance Minister Sri Mulyani IndrawatiThe nation has taken legal action against the European Union over stricter limits on how palm oil can be used in green fuels, marking a further deepening in trade tensionsBank Indonesia revises rule on foreign-exchange flows to provide more transparency and information on these activitiesTwo Goldman Sachs Group Inc. units facing criminal charges for their alleged role in the 1MDB scandal had their cases moved to a higher court in MalaysiaMalaysia’s Foreign Ministry is in the middle of organizing discussions with India to address issues the latter country has raised, Primary Industries Minister Teresa Kok saidMalaysia is vulnerable to escalating trade tensions, while domestic risks include sharp drop in real-estate prices or worsening household debt service ability, the IMF said after a consultation visitPrime Minister Mahathir Mohamad asked its oil-producing states to consider owning stakes in Petroliam Nasional Bhd., after saying the government can’t afford to increase royalty payments as promised

Philippine central bank Governor Benjamin Diokno said the authority isn’t in a rush to cut lenders reserve requirement ratio anew even as he reiterates at least 50 basis points in key rate reductions next year

Bangko Sentral ng Pilipinas said while inflation risks still lean slightly toward upside in 2020 and downside in 2021, target maintained at 2%-4% through 2022Economic Planning Secretary Ernesto Pernia said the economy will likely grow 6.6%-6.7% in the fourth quarter, allowing nation to meet its revised target of 6%-6.5% for the full yearThe central bank is examining lenders that were possible destinations of fund transfers using Westpac Banking Corp.’s service allegedly linked to money laundering and child exploitation, Deputy Governor Chuchi Fonacier saidTaiwan’s central bank kept its policy rate unchanged at 1.375% as expected and raised 2019 and 2020 GDP forecastsTaiwan is talking to the U.S. over foreign-exchange watch list inclusion criteria. Trade surplus against the U.S. and the island’s high current-account surplus may risk its return to the watch list if the U.S. doesn’t change its criteria, central bank Governor Yang Chin-long said

EMEA:

Turkey is limiting the amount of hard currency local banks can exchange for lira with foreign investors, a move that could benefit the central bank by pushing dollar liquidity into its official reservesThe Senate Foreign Relations Committee approved sanctions on Russia for meddling in the 2016 election, despite resistance from the Trump administration and concerns about collateral economic damageCzech policy makers’ views are shifting toward possibly raising rates next year to curb inflation after risks from an economic slowdown abroad prompted a six-month pause in tighteningHungary’s central bank left rates unchanged as expected and signaled that it no longer saw downside inflation risks prevailing, though it expanded a corporate bond purchase plan that has bolstered economic growthCroatian President Kolinda Grabar Kitarovic will face a runoff against a former prime minister in her bid for re-election in the European Union’s newest member-state

Lebanon’s worst economic crisis in decades is forcing authorities to wade deeper into the kind of fiscal engineering that the IMF said risks undermining the central bank’s credibility

The central bank bought 3 trillion pounds ($2 billion) of Treasury bills from the government at 1%, well below market rates, according to a person with knowledge of the matterS&P Global Ratings said three Lebanese banks were downgraded to “selective default” following emergency measures by the central bank and local lenders that restrict clients’ access to their deposits

Kuwait stocks beat peers in the Gulf this year as investors bet that MSCI will promote the country into its main index tracking stocks in emerging markets

MSCI will upgrade Kuwait to emerging-markets category in MayMorocco’s central bank held rates steady, opting against ending a nearly four-year freeze even after King Mohammed VI called on lenders to open their taps for businessesGhana’s economy expanded at the slowest pace in more than a year in the third quarter as gold output in the continent’s biggest producer of the metal declinedSouth Africa’s long-term issuer default rating was affirmed by Fitch at BB+, one level below investment grade. The outlook remains negativeSouth Africa’s biggest labor group is proposing that more than half the debt of state-owned Eskom Holding SOC Ltd. be put into a special purpose vehicle to help save the utility and avoid job cutsZimbabwe, which is banking on investment in its natural resources to arrest an economic free-fall, faces having the assets of the state mining company seized after a final appeal of a 2014 arbitration ruling failedNigerian President Muhammadu Buhari signed the country’s spending plan for next year into law, a record two months after the proposal aimed to help spur growth was sent to lawmakersThe West African Economic and Monetary Union has agreed with France to a number of changes to the CFA franc currency, including a new name, Ivory Coast’s President Alassane Ouattara said. The monetary union will keep its euro peg while moving its currency reserve from France, the former colonial power, Outtara said

Latin America:

Brazil’s central bank lifted its economic growth forecasts for this year and next in the quarterly inflation reportPolicy makers said in the minutes of last meeting a pickup in inflation driven by higher meat prices will be limited to the final months of this yearCountry posted the fastest mid-month inflation since June 2018 as the economy bears the brunt of higher food costs driven by a surge in meat pricesEconomy minister said the pace of economic growth in 2020 is expected to be at least double that of this yearThe U.S.-Mexico-Canada trade pact was approved by the U.S. House Thursday on a 385-41 vote, after it drew broad support from Republicans, Democrats, many labor groups and businessesMexico will raise its minimum wage by 20% as President Andres Manuel Lopez Obrador doubles down on redistribution policiesRetail sales dropped 2.3% in October compared with September, the worst result since Dec. 2018Argentina’s new government is proposing higher export levies and a tax on the purchase of foreign currency as part of a plan to boost social spending and fix its debt problemThe government wants to continue making debt payments while it renegotiates with creditors in the coming months, central bank chief Miguel Pesce saidThe government appealed to bondholders including Pacific Investment Management Co. to roll over maturing debtA group of Argentina bondholders hired advisers ahead of the negotiationsMSCI Inc. kept Argentine equities in its emerging-market indexes, though the company warned it may remove the nation in 2020 should recently imposed capital controls limit investor accessArgentina’s credit rating was downgraded to near-default status by one of the biggest global ratings companies after the government said it would delay payments on its dollar-denominated local debtArgentine lawmakers handed President Alberto Fernandez extraordinary powers to renegotiate debt terms with creditors and increase taxes, marking a victory on his first legislation since taking officeProsecutors in Bolivia issued an arrest warrant for former President Evo Morales on charges of “sedition, terrorism and terrorist financing”Chile’s congress approved a bill that paves the way for the drafting of a new constitutionCentral bank sees little room for rate cuts in coming months, according to the minutes of the last policy meetingVenezuela’s President Nicolas Maduro is offering an unorthodox payback to Wall Street creditors as part of a long-shot effort to get the Trump administration to reverse sanctions

Colombia’s congress approved a bill that cuts taxes on companies while raising them on rich individuals, and which Fitch Ratings said makes it harder for the country to hit its fiscal targets

Jose Antonio Ocampo resigned from Colombia’s central bank board citing “personal reasons”The bank’s board voted unanimously to leave the policy rate at 4.25% for the 20th straight month, Governor Juan Jose Echavarria said Friday

--With assistance from Colleen Goko, Selcuk Gokoluk and Philip Sanders.

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, Karl Lester M. Yap, Alex Nicholson

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