EM Review: Phase-One Deal Hope Fueled Rally as Iran Risk Eased

Bloomberg News

(Bloomberg) -- Emerging-market stocks and currencies climbed for a sixth consecutive week to 19-month highs last week 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. 12.

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

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 casualtiesConditions boiled over as Iranians gathered for a second night of protests after the government admitted it had mistakenly downed a Ukrainian passenger jet, triggering global outrage as well as internal dissentIn 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 TehranThe 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 securityChina 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 TrumpThe U.S. and China are finalizing a bevy of long-running corporate deals ahead of the signingFederal 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 saidA 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 stepsTaiwan President Tsai Ing-wen of the Democratic Progressive 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 sovereigntyThe Philippine government started a mass evacuation after an erupting volcano 40 miles (65 kilometers) south of the capital triggered some 75 earthquakes and spewed “ballistic fragments”

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 growthChina on Monday released Caixin PMI composite and services measures for December. Both indexes were lower than the previous month, but still showed expansionChina’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 yearChina 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 giantsThailand’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 saidThe 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 committeeThailand’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 manipulatorsThailand’s parliament approved the annual budget after a months-long delayThousands of people joined a rally in Thailand to protest against the military-backed governmentIndonesia 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 noteThe 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 economySouth Korea’s foreign-exchange reserves increased to $408.8 billion at end-December, compared with $407.5 billion the previous monthThe 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 saidMalaysian 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 courtForeign ownership of Malaysian government and corporate bonds and bills rose to 204.7 billion ringgit ($50 billion) in December, highest since April 2018India’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 officialThe 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 statementIndia’s monetary authority allowed banks to offer foreign-currency transactions outside of local market hours, a move aimed at boosting trading volumes at homeIndian 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 struggledIndia, the world’s biggest palm oil buyer, restricted imports of the refined palm oil and palm olein on Wednesday to support the domestic processing industryIndia opened up coal mining to a larger pool of investors and eased environmental norms as it seeks to boost output and meet growing energy needsMasked 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 governmentThe 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 saidDubai 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 ChannelPhilippine 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 operateBids 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 saidWith 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 agoPutin pushed for a ceasefire in Libya as he held talks with some of the countries that support the warring sides in the North African nationRomania extended a year-and-a-half pause in interest rates as it weighs above-target inflation against a weakening economyPoland 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 eventsAbu 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 assetsLebanon’s central bank wants local holders of a $1.2 billion Eurobond maturing in March to swap into new notes as part of an effort to manage its debt crisisThe 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 concernsSentiment 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 monthBusiness 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 ratingThe ruling African National Congress reaffirmed the central bank’s role, mandate and independence in an annual policy statementGhana 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 NovemberAngola’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 economyInflation ended 2019 above the official target, reducing bets that the central bank would extend its record-breaking monetary easing cycle with one additional rate cutThe 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 exchangeA 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 DecemberIHS 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 expectationsArgentina’s new central bank president, Miguel Pesce, pledged to further cut interest rates to boost a free-falling economyThe central bank cut the floor of its interest rate late Thursday to 52%President Alberto Fernandez, in an interview published on Cohete a la Luna website on Sunday, said his administration aims to “resolve” how much external debt the country needed to repay by March 31Western Hemisphere Director Alejandro Werner said in an interview Sunday evening that an IMF mission will go to Argentina toward the end of January to begin formal talksBuenos Aires Province held a phone call with holders of bonds due 2021 to discuss temporary financial relief for the provinceArgentina transferred $3.24 billion from central bank reserves to the Treasury to pay off debt, according to an official gazetteA U.S. judge dismissed Aurelius Capital Management’s lawsuit claiming Argentina failed to properly calculate when payments on securities linked to economic growth were triggeredS&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 higherBuenos 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. Argentine Economy Minister Martin Guzman said Sunday that the national government won’t help Buenos Aires province make an upcoming $250 million debt paymentMexico closed 2019 with the second-lowest year-end inflation rate in at least five decades amid a stalled economyFinance Minister Arturo Herrera told reporters that Mexico paid about $1 billion for hedging its oil exports for this yearMexico sold $2.3 billion of debt Monday at above the initial pricingChilean 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 chainsThe outbreak of mass unrest in Chile will slash the government’s 2020 revenues by $3 billion, according to a top budget officialDecember trade surplus came in at $1.46 billion, beating estimatesCodelco priced a $2 billion debt offering, taking advantage of favorable debt market conditionsPeru’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 growthColombian authorities say they foiled a plot by dissident guerrillas to assassinate a leader of the FARC, the Marxist guerrilla group which became a political party following a peace deal with the governmentPresident Nicolas Maduro ordered a 67% increase in Venezuela’s monthly minimum wage, the first this year and the eleventh in the past 24 months

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

To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Lilian Karunungan in Singapore at lkarunungan@bloomberg.net;Netty Ismail in Dubai at nismail3@bloomberg.net;Sydney Maki in New York at smaki8@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Karl Lester M. Yap

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