Reality check looms for emerging markets


  • Business
  • Tuesday, 12 Nov 2019

DUBAI: Sputtering progress toward a trade deal and signs of weakness in the Chinese economy are looming as the biggest threats to the wave of optimism spreading across emerging markets.

Before last Friday, developing-nation stocks had touched the highest level since May and currencies held near a three-month high. Then President Donald Trump rattled traders by saying the US hadn’t agreed to a tariff rollback with China, dimming hopes for a preliminary trade deal next month. Beijing wants a deal “much more than I do, ” Trump weighed in again last Saturday.

A slew of data is forecast to show weakness spread across China’s economy in October, with production slowing and credit pulling back from a seasonal jump.

All of which means the yuan will probably continue to set the tone for trading as its correlation with other emerging-market currencies remains near the record high reached in July. The Chinese currency strengthened past 7 per dollar in its fifth week of gains through Friday, its longest winning streak since February 2018.

“There remains considerable uncertainty about how a phase-one agreement will be secured, ” said Mansoor Mohi-uddin, a Singapore-based senior macro strategist at NatWest Markets. “Upside strength in the yuan may also be limited by renewed monetary easing.”

Mexico’s central bank is expected to cut interest rates for the third time this year on Thursday, which NatWest Markets expects to mark the start of faster, deeper reductions that could weigh on the peso.

With inflation slowing to its lowest level in over nine years, Egypt’s central bank will likely add to this year’s 350 basis points of rate cuts. The Monetary Policy Committee will probably reduce its key rate by a further 100 basis points to 12.25% Thursday, according to a Bloomberg survey.

The Philippine central bank’s interest-rate decision on the same day will probably result in a pause in monetary easing after governor Benjamin Diokno said this month the authorities have “done more than enough for the year.”

Policy makers have delivered 75 basis points of rate cuts and also lowered the reserve ratio.

There is also less need to support the economy after growth rebounded to 6.2% in the third quarter”Monetary policy is supportive across regions, but any optimism on growth also relies on the ongoing trade talks to deliver the expected de-escalation, ”Barclays Capital Inc. economists Christian Keller in London and Michael Gapen in New York wrote in a report.

Economic data and events China’s economic reports, which will also include retail sales, will give the latest read on how growth is holding up in the wake of additional US tariffs that took effect in September. Investors will watch Argentina’s consumer price inflation data for October, released on Thursday, as they await details on President-elect Alberto Fernandez’s economic plan. The peso is the worst-performing currency in the world this year.

September retail sales and economic activity numbers for Brazil come on Wednesday while Peru’s September economic activity index will probably indicate growth is recovering below potential, which may help explain why the central bank unexpectedly cut interest rates in November.

Malaysia will probably report on Friday that third-quarter GDP slowed as exports struggled; Poland, Hungary, the Czech Republic, Romania and Ukraine will release GDP data on Thursday.

Trade-deficit countries India and Indonesia will report October figures for exports and imports on Friday. India is also due to release October consumer-price and wholesale-price inflation. The central bank last month maintained its sub-4% inflation projections for the year ahead, signalling room for more easing after reducing the benchmark rate five times this year.

President Trump is scheduled to meet Turkish counterpart Recep Tayyip Erdogan at the White House tomorrow amid lingering rifts over Ankara’s purchase of a Russian missile-defence system and a US case against Turkish state-lender Halkbank.

Turkey is set to unveil its current account balance today and industrial production data on Thursday.

Saudi Aramco will allow investors to start bidding for shares in the world’s most-profitable company from Nov 17. It left potential buyers in the dark about the size of the stake it plans to sell and the pricing range.

Romanian President Klaus Iohannis won in Sunday’s first round of voting, clinching about 37% of votes, according to preliminary results.

A runoff will be held two weeks later against Social Democrat leader Viorica Dancila, whose government was ousted last month and had about 23% of the votes. The finance ministers of Ghana and Zimbabwe will present their 2020 budgets on Thursday. — Bloomberg

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