Emerging-Market Stocks, Currencies Fall as Trade War Intensifies

Bloomberg News
Emerging-Market Stocks, Currencies Fall as Trade War Intensifies

(Bloomberg) -- Emerging-market stocks slumped to the lowest level since January last week, and a gauge of currencies erased its year-to-date advance as trade tensions escalated, leading investors to reassess the odds of a deal between the world’s two largest economies.

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The following is a roundup of emerging-markets news and highlights for the week ending May 19.


China announced that it will increase tariffs on about $60 billion of U.S. goods in retaliation for President Donald Trump’s latest escalation of the trade warThe U.S. Trade Representative’s office released a list of about $300 billion worth of Chinese goods including children’s clothing, toys, mobile phones and laptops that Trump has threatened to hit with a 25% tariff. Trump said he’ll meet his Chinese counterpart, Xi Jinping, at next month’s G-20 summit China’s state media signaled a lack of interest in resuming trade talks with the U.S. under the current threat to escalate tariffs, while the government said stimulus will be stepped up to buttress the domestic economyTrump ratcheted up his battle with China for dominance of 5G technology networks, moving to curb Huawei’s access to the U.S. market and American suppliersChina’s economy lost steam in April. Industrial output, retail sales and investment all slowed more than economists forecastChina will study the impact of U.S. tariffs on its economy and roll out policies to prop up growth when necessary, National Development and Reform Commission spokeswoman Meng Wei says The People’s Bank of China won’t let the yuan weaken past 7 per dollar, Reuters reported, citing unidentified people familiar the policyChina has accumulated the experience and has ample policy tools to cope with forex market fluctuations, State Administration of Foreign Exchange head Pan Gongsheng saidTwenty-six China A shares will be added to the MSCI China Index, while 30 equities from Saudi Arabia and eight Argentine securities are set to join the MSCI Inc.’s emerging-market stock benchmarks, steps that could potentially draw billions of dollars of investor inflowsArgentina’s Cristina Fernandez de Kirchner will run as a vice-presidential candidate in upcoming elections, stunning many who believed she’d positioned herself to return to the top job. She will run on the same ticket as Alberto Fernandez, a veteran politician and her late husband’s former cabinet chiefTurkey will reintroduce a 0.1% tax on some foreign-currency transactions in a move that will increase budget revenue but risks raising concern that the government is taking on a larger role in managing the marketThe U.S. announced a rollback of steel tariffs against Turkey, cutting in half the 50% levy paid on steel importsPresident Recep Tayyip Erdogan ruled out delaying the purchase of an advanced Russian missile-defense system at the request of the U.S.Russia reeled in a bond-auction record, selling the equivalent of $1.5 billion of debt as investors gave short shrift to U.S. lawmakers’ plans to restart a debate on sanctionsSaudi Arabia does not want a war with Iran but will respond “with strength and determination” if Iran decides to start one, a top Saudi official said on May 19Saudi King Salman Bin Abdulaziz has called on Gulf Cooperation Council members and Arab countries to hold emergency meetings May 30Prime Minister Narendra Modi’s ruling coalition is poised for victory in India’s general elections, exit polls showed, which would give it another five years running the world’s fastest-growing major economy despite a jobs crisis and struggling rural sectorThe Philippine central bank cut the amount of money that large banks are required to hold as reserves by 2 percentage points to 16%. Policy makers will consider reducing the reserve ratio further if banks don’t misbehave and speculate against the peso, Governor Benjamin Diokno saidThe nation raised 2.5 billion yuan ($362 million) in its return to China’s bond market after its debut in 2018


China cut its U.S. Treasuries holdings to the lowest level since 2017 in MarchREAD: Trade War May Spur China to Sell Treasuries as Yuan TumblesChina to start equity-financing support instruments at appropriate time in 2019, National Development and Reform Commission saidGlobal funds are taking cover in defensive trades amid the widening U.S.-China rift, with yuan sovereign bonds emerging as the top pick in developing AsiaChina and Singapore renew 300 billion yuan ($43 billion) local currency swap agreementIndia’s inflation inched up to a six-month high in April, while remaining well below the central bank’s target to prompt another interest-rate cut to support the economyBank Indonesia kept its key interest rate unchanged at 6%, in line with survey, and said it will consider if there’s room to ease monetary policyThe country is drafting ambitious plans for more than $400 billion in building projectsThe nation sold 177 billion yen ($1.6 billion) of multi-tranche Samurai bondsIndonesia is worried about being targeted by Trump in a wider protectionist push, a senior minister saidIt posted it’s biggest trade deficit since at least 2008 as exports plungedIndonesia pushes for commercial paper market to boost liquidity South Korean President Moon Jae-in said fiscal policy should take on a more active role in boosting jobs as well as strengthen the labor market’s safety netTrade dispute between the U.S. and China may widen the global financial market volatility and South Korea will take timely action if local market volatility widens, Vice Finance Minister Lee Ho-seung saidTrump will visit South Korea while in Asia for the G-20 summit in late June amid concerns of a breakdown in nuclear talks with North KoreaSouth Korea’s slowing economy is showing signs of bottoming out, although a weak 1Q GDP and escalating global trade tensions present risks to 2019 growth forecast, Fitch Ratings says Thailand unveiled an appointed Senate that will play a key role in selecting the next prime minister and which features allies of the military governmentParliament to convene from May 22 following March electionBank of Thailand Governor Veerathai Santiprabhob reiterates earlier comments by the central bank that it doesn’t intervene in the foreign exchange market for a trade gainMalaysia’s central bank rolled out a slew of initiatives to deepen its onshore marketsEconomy grew at a slower pace in the first quarter than the previous three months, dragged down by weaker trade and investment in the export-reliant nation. First-quarter current-account surplus grew to the biggest in five years Investors pulled money from the sole U.S.-listed exchange-traded fund with exposure to Malaysian stocks in the largest weekly outflow this yearAllies of President Rodrigo Duterte dominated the Philippine senate after a midterm electionFilipinos overseas sent home $2.51 billion in March, up 6.6% from a year agoTaiwan bank deposits denominated in the Chinese currency fell to 274.7 billion yuan at end-April from the month before


U.S. Secretary of State Michael Pompeo made scant progress persuading European Union counterparts to take a harder line toward Iran during a quick visit to Brussels, with the EU standing behind the nuclear accord abandoned by Washington -- and warning of a potential military conflictRussia’s economy grew 0.5% in the first quarter, well below estimatesTrade surplus narrowed in March to to $15.5bMoody’s Investors Service sees South Africa’s ratio of debt-to-gross domestic product deteriorating should the country fail to contain spending and funding risks from the state power companySouth African retail sales rose at the slowest pace in four months in March The unemployment rate climbed in the first quarter of 2019 as construction and financial-services firms cut positionsA Turkish court ruled on Wednesday to keep a U.S. consulate employee in jail on terrorism-related charges and put off the verdict in a high-profile case that the Trump administration is watching closely; the court decided to hold the next hearing on June 28. The embassy employee could face up to 35 years in prison if convictedUkraine’s ruling government coalition collapsed after the People’s Front decided to leave, posing a challenge to President-elect Volodymyr Zelenskiy’s efforts to hold early electionsPoland left its key interest rate unchanged at 1.5%, where it’s been for four years, even after a jump in inflation Treasury officials from Kenya, East Africa’s biggest economy, went on a roadshow to raise about $2 billion. The proceeds will be spent on retiring $750 million Eurobonds maturing in June, and to finance its 2018-19 budget and infrastructure developmentA plan to build Zimbabwe’s biggest platinum mine at a cost of about $4 billion is floundering because a military stake in the project has deterred potential backers, according to people familiar with the funding discussionsAngola’s economy is likely to emerge from recession this year, growing at 0.3% after three years of contraction, and the debt-to-GDP ratio will fall to around 70%, Moody’s saidKuwait’s share of the MSCI Frontier Markets Index is set to surge more than 5 percentage points to 30.4% at the close of trading on May 28, according to the index providerSaudi Arabia approved a program that offers permanent residency for some foreigners to attract investments, the latest sign of how the quest for non-oil revenue is prompting Gulf Arab countries to rethink the role of expats in their societies The kingdom temporarily halted on Tuesday its main cross-country oil pipeline after a drone attack damaged pumping stations along the link, a strike claimed by Iran-backed rebels in neighboring Yemen Saudi Arabia accused Iran on Thursday of ordering attacks on key oil facilitiesKazakhstan is weighing a September or October sale of a tenge-denominated Eurobond in order to secure its inclusion in indexes tracked by investors

Latin America

Brazil’s crumbling growth estimates and renewed political noise sent the real past a key support level as traders reassessed odds for the government’s flagship pension reformGradual economic recovery was interrupted at the start of the year and may resume at a slower pace going forward, the central bank said in minutes of its latest monetary policy meetingTens of thousands of demonstrators marched in major cities on Wednesday to protest a freeze to the education budget, adding to the headwinds buffeting President Jair Bolsonaro’s legislative agendaThe government suffered a new defeat in the lower house, which approved a motion to summon the education minister for a hearingLocal media reported that one of the owners of airline Gol reached a plea deal with prosecutors detailing alleged bribes to several politicians including Lower House President Rodrigo Maia, who’s seen as the most influential person in pension bill debateArgentina’s inflation slowed more than analysts expected in April after the government froze prices on dozens of goods in an attempt to boost President Mauricio Macri’s re-election bidFitch Ratings affirmed Argentina’s credit rating at "B" with a negative outlook citing the country’s fragile macroeconomic backdrop and uncertainties related to the upcoming presidential electionMexican policy makers voted unanimously to hold the key rate at 8.25%, the highest in a decade, after inflation exceeded the target rangeCentral bank told investors to “remain alert to domestic issues such as the credit perspectives for Pemex”Mexico’s state oil company is set to receive added tax breaks to help reverse long-term production declines and avoid tapping the nation’s rainy day fund, according to its chief executive officerChile’s inflation figures may have been manipulated in two months of last year, the statistics agency said, catching the market by surprise in a country where everything from mortgages to salaries are indexed to price-growthColombia’s economy grew less than expected in the first quarter amid a slump in home and office building

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

To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Srinivasan Sivabalan in London at ssivabalan@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

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