U.S.-China Tensions Halt Rally in Emerging Market Currencies

U.S.-China Tensions Halt Rally in Emerging Market Currencies

(Bloomberg) — A rally in emerging-market currencies paused last week, even as the dollar held close to its lowest level in two years, as intensifying U.S.-China tensions outweighed positive developments on the vaccine front and optimism of a U.S. stimulus deal. Developing-nation stocks rose for a third week amid signs of recovery in U.S. manufacturing data while a gauge of bonds fell for the first time in seven weeks. Argentina and Ecuador reached agreements with their top holders to restructure billions of dollars in overseas debt.

The following is a roundup of emerging-market news and highlights for the week through Aug. 9:

Click here for our emerging-markets weekly preview, and listen here to our weekly podcast.


U.S. President Donald Trump signed four executive orders related to coronavirus economic relief, including expanded unemployment benefits, a temporary payroll tax deferral, eviction protection and student-loan relief

Senior U.S. and Chinese officials are planning to assess the nations’ trade agreement this month against a backdrop of rising tensions between the two countries, according to people briefed on the matterTrump signed a pair of executive orders prohibiting U.S. residents from doing any business with TikTok, WeChat or the apps’ Chinese ownersChina’s state-run media branded U.S. demands for the sale of TikTok’s American operations to Microsoft Corp. as “theft” and suggested Beijing may block the transactionThe U.S. is placing sanctions on 11 Chinese officials and their allies in Hong Kong, including Chief Executive Carrie Lam, over their roles in curtailing political freedoms in the former U.K. colony, the Treasury Department said FridayA high-powered group of U.S. regulators said stock exchanges should set new rules that could trigger the delisting of Chinese companies, following mounting concerns that investors are being exposed to fraudsNegotiations over a virus relief package ended Thursday night with the White House and Democrats making no headway on resolving their biggest difference, bringing the talks to the brink of collapseTrump said he may take executive action to impose a moratorium on evictions and to enact a payroll tax holidayFederal Reserve officials warned that another round of fiscal relief would be critical for the U.S. economyJohnson & Johnson will supply 100 million doses of its experimental virus vaccine to the U.S., while Moderna said it has received $400 million of deposits for its potential shotFactory managers in Asia broadly saw a modest pickup in activity in July as China’s demand kept up its momentum. Taiwan, at 50.6 — its best reading since January — was a rare economy that rose above 50, the dividing line between contraction and expansionChina’s exports rose in July as economic activity in the rest of the world started resuming, while an unexpected contraction in imports signaled the ongoing fragility of the domestic recoveryRead: CHINA REACT: Exports Surprise Should Aid Recovery as Risks MountArgentina struck a deal with its top creditors to restructure $65 billion of debt after months of negotiations, setting the stage for the nation to emerge from its third default since the turn of the century

Turkey’s lira tumbled to its lowest level against the dollar as interventions by state banks failed to keep a lid on the currency’s depreciation; the cost of borrowing Turkish liras overnight in the offshore market surged to the highest level since March 2019 earlier in the week

Several international banks failed to close their lira positions with Turkish counterparts on Tuesday, an outcome of policies that are keeping a lid on local-currency liquidity offshoreTurkish authorities are working on a plan to exempt global investment banks from some restrictions on swapping foreign exchange for liras after easing access for international development banks, according to people with direct knowledge of the matterCentral bank stopped funding local lenders from its one-week repurchase rate, forcing the banks to borrow from a more expensive overnight windowA massive explosion at Lebanon’s main port rocked Beirut, overwhelming hospitals dealing with the injured and dying. The blast was so large it blew out windows across the capital and was even heard from CyprusWorld leaders pledged almost $300 million to help support Lebanon and rebuild Beirut after the deadly blasts last week Ecuador has won the support of enough bondholders to restructure $17.4 billion in international debt, almost a third of its total foreign obligationsBrazil topped 3 million coronavirus infections as the disease flares up in parts of the country it had spared


China’s factory activity grew at a faster pace in July than at any point since January 2011, as the economic recovery gained momentum, a private gauge showedChina’s banks need about $500 billion in fresh liquidity this month to roll over existing debt and buy government bonds, complicating the People’s Bank of China’s efforts to exit crisis measuresOfficial reserve assets of China rose $54.9b, or 1.7{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}, from the previous month to $3.3t in JulySmall businesses in China are being told by their foreign banks that loan extensions mandated by the government no longer apply to them as the nation dials back one of the relief measures unleashed after the coronavirus lockdownChina signaled it did not want relations with the U.S. to worsen and urged against the creation of a “new Cold War”The U.S. government issued an alert that a type of malware seen frequently by security researchers in the last decade is tied to the Chinese governmentSecretary of State Michael Pompeo urged American companies to bar Chinese applications from their app storesSouth Korea’s export slump slowed in July, aided by the economic recovery in China and resilient demand for semiconductorsConsumer prices advanced in July, led by fresh foods, adding to signs that the economic downturn from the coronavirus pandemic is bottoming out, though questions linger about the strength of recoveryBank of Korea should maintain its low interest rate policy until there’s enough recovery momentum seen in South Korean economy, one board member said, according to minutes of July 16 meetingIndia’s central bank kept interest rates unchanged on Thursday, opting for inflation to cool before taking further action to boost a fragile economyOf all the countries in the world, the disconnect between rallying global stocks and deteriorating data is probably the most pronounced in IndiaThe monetary authority will allow banks to restructure some of their loans and plans to reassess how much capital they need to set aside for priority sectors

Indonesia’s economy contracted for the first time since the aftermath of the Asian Financial Crisis more than two decades ago, as movement restrictions to contain the coronavirus outbreak took a toll on Southeast Asia’s largest economy

Consumer prices in July rose 1.54{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} from a year earlier, the lowest pace since May 2000 at 1.2{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}State spending will total about 1,476 trillion rupiah ($101 billion) in the six months through December, Finance Minister Sri Mulyani Indrawati saidThe government kicked off an unconventional debt financing program with its first direct sale of sovereign bonds to the central bank to fund billions of dollars in fiscal stimulusReserves rose to a record $135.1 billion in JulyThe Bank of Thailand held its benchmark interest rate steady at an all-time low to support an economy that’s taking the biggest knock in Asia related to the coronavirus pandemicThailand has a new finance minister to help shape the government’s response to the sharp recession induced by the virus pandemic, one of a number of changes in a wider Cabinet reshuffleThe Philippine economy suffered its deepest contraction on record in the second quarter and revised down its forecast for the yearThe capital returned to a stricter lockdown from Tuesday as coronavirus cases surged; President Rodrigo Duterte is seeking to boost the budget for next year by almost 10{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} to sustain the nation’s efforts to fight the pandemicDespite imposing the longest, strictest lockdown in Southeast Asia, coronavirus cases in the Philippines have surged to almost 120,000, eclipsing Indonesia to become the region’s biggest outbreakOverseas Filipinos sent home $2.11 billion in May, down 19.3{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} from a year ago, steepest drop since Jan. 2001Inflation hit a six-month high in July; the Philippine government increased its ceiling for the budget deficit until 2022

Malaysia’s unemployment rate eased to 4.9{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in June, from a record high 5.3{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} in May

The High Court on Friday struck off a lawsuit filed by former Prime Minister Mahathir Mohamad and five others against Prime Minister Muhyiddin Yassin over the termination of their membership in ruling party Parti Pribumi Bersatu Malaysia or BersatuHealth and Human Services Secretary Alex Azar will lead a delegation to Taiwan in the highest-level visit by a U.S. cabinet official since Washington cut ties with Taipei more than 40 years ago. The announcement drew a rebuke from ChinaThe brothers ruling Sri Lanka scored a landslide victory in parliamentary elections that could help President Gotabaya Rajapaksa push through contentious constitutional changes to restore sweeping executive powers to his officeTaiwan’s exports unexpectedly rose for the first time since February, spurred by a surge in U.S. and Chinese demand for technology products


Russian telecommunications investor Ivan Tavrin raised $250 million in the U.S. to fund acquisitions, taking advantage of investor appetite for so called blank-check initial public offeringsIndustrial production in Russia may contract 4{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49}-5{09c3c849cf64d23af04bfef51e68a1f749678453f0f72e4bb3c75fcb14e04d49} this yearRussia has begun the process of pulling out of its agreement with Cyprus on avoiding double taxationRomania cut borrowing costs to a record as the fallout from the coronavirus continues to batter the economy and new infections remain highTurkish inflation surprised with a bigger slowdown than anticipated, heading off the prospect of interest rates rising any time soonA leading association of Turkish doctors said that nearly 1,000 people are being infected with the coronavirus every day in Ankara alone, questioning the accuracy of government figuresA surge in coronavirus cases has prompted the Turkish government to debate new restrictions, including changes to the school calendarForeign-exchange sales by Turkish institutions to foreign financial firms were exempted from a punitive tax, in a new step taken by authorities following the lira’s weakening to a record lowAs emergency services assess the toll from Tuesday’s deadly explosion in Beirut, one immediate consequence is becoming clear to analysts: it will ratchet up pressure on Prime Minister Hassan Diab to make meaningful progress in talks with international lenders and investorsThe huge explosion in Lebanon’s capital of Beirut tore through major grain silos, stoking fears of shortages in a nation that imports nearly all its food and is already reeling from economic crisisThe volatile chemical suspected of causing the deadly explosion that flattened Lebanon’s main port had been lying in storage there for six years despite warnings from customs officials about its hazards

Foreign investors continue to desert South Africa’s bond market in July, with their share of government debt falling to the lowest level in more than eight years

President Cyril Ramaphosa’s tenuous control of the ruling party was laid bare at the weekend when its leaders rebuffed his proposal to investigate allegedly tainted state contracts for health equipmentSouth African business leaders are growing increasingly concerned that the government doesn’t have the will or capacity to overcome the economic devastation wrought by the coronavirus pandemicRamaphosa appointed a government committee to investigate alleged corruption associated with the country’s response to the coronavirus pandemicPoland will introduce new containment measures against Covid-19 in some of the most affected areas in the country of 38 million people after fresh infections set records in the past weeksWith countries around the world pledging more monetary assistance for their virus-stricken economies, a record government spending spree and resilient inflation may allow the Czech central bank to raise borrowing costs as early as next yearThe United Arab Emirates will deliver a three-stage “flexible package” of measures to bolster the economy, including steps to support the labor market and encourage investmentAnother month of improving business conditions across the Arab world’s three biggest economies isn’t translating into job gains just yet; Employment continued to fall in Saudi Arabia, the United Arab Emirates and Egypt despite a stronger pickup in non-oil private sector activity in July, according to Purchasing Managers’ Index surveys compiled by IHS MarkitTen Kuwaiti lawmakers submitted a motion of no-confidence in Finance Minister Barak Al-Sheetan after accusing him of pursuing economic reforms that will leave ordinary citizens worse offAfter months of quiet, Israel is facing off against Hezbollah forces across its border, in a showdown exacerbating the economic and political strife already convulsing both sides of the frontierThere is no recovery in sight yet for Africa’s worst-performing stock market as investors look to bank earnings this month to assess how hard the coronavirus pandemic hit Kenyan lendersEthiopia may be running out of time to negotiate an agreement on the filling and operation of a mega-dam on the Nile River thats pitted the Horn of Africa nation against Egypt and Sudan, the U.S. State Department said

Latin America:

Argentina aims to reach a deal with the International Monetary Fund over a new financing program by the end of March after closing a deal with top bondholders, according to a person with direct knowledge of the matterProvince of Rio Negro is in talks with creditors and Entre Rios hired HSBC Holdings Plc as an adviser to restructure its debt; Mendoza extended a deadline for creditors to accept a debt restructuring offerPresident Alberto Fernandez said he still wants a state-run company to have a sizable share of Argentina’s crop tradingEcuador is aiming to secure additional financing by the end of August to help plug its fiscal gap after wrapping up a deal to restructure $17.4 billion of debt, according to Finance Minister Richard MartinezMartinez said the country reached an agreement with China to reschedule debt paymentsBrazil’s central bank said it may consider another small cut to its key interest rate to boost an economy ravaged by the coronavirus, depending on prospects for public finances and inflationEconomic team is said to be considering extending emergency payments to informal workers past September, when they were due to expire, and plans to allow early withdrawals from some pension fundsEconomy Minister Paulo Guedes asked lawmakers to approve the first part of a proposed overhaul of the tax system by the end of the yearBrazil’s development bank will reap about $1.56 billion from its latest asset sale, picking up an agenda to reduce the size of the governmentBrazil’s Senate approved a proposal that limits interest rates banks are allowed to charge their clients during the pandemicBrazil to begin production of coronavirus vaccine in DecemberIndustrial output rose more than forecast in June from the month before and inflation accelerated in July

President Andres Manuel Lopez Obrador said Mexico may need to change the rules governing the country’s energy industry and reverse the opening to private companies to save state oil giant Petroleos Mexicanos, according to a memorandum seen by Bloomberg News

Mexico’s remittances beat estimates for a fourth consecutive month in June despite the decline in U.S. activity, and inflation accelerated in JulyCentral bank deputy governor Gerardo Esquivel said there may be more than one interest rate cut in the pipeline for Mexico this yearMexico City plans to reopen restaurants and allow other businesses, like bars and party venues for children, to operate exclusively as restaurants, Mayor Claudia Sheinbaum saidPeru’s President Martin Vizcarra said he’ll pick his second cabinet in less than a month after unexpectedly losing a congressional vote of confidenceVizcarra is said to retain Finance Minister Maria Antonieta Alva after the reshuffle and Defense Minister Walter Martos will take over as cabinet chiefChile’s Congress approved a constitutional reform that allows the central bank to buy debt instruments issued by the state in the secondary marketEconomic activity fell less than expected in June as mining output increased despite lock-downs across many parts of the countryAlvaro Uribe, the most powerful leader in Colombia’s recent history, was placed under house arrest while he’s investigated over an alleged plot to bribe jailed mobstersUruguay’s central bank will resume using interest rates as its main monetary policy tool after largely failing to control inflation by targeting changes in money supply

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