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Emerging Markets Give Up Gains After Midterms, FOMC

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(Bloomberg) -- Emerging-market stocks and currencies gave up some of November’s gains this week as the Federal Reserve indicated it will keep raising rates, sending the U.S. dollar higher and dampening a post-midterm rally.

Assets Weekly 
MSCI EM stocks index -2.1%
MSCI EM FX index -0.5%
Bloomberg Barclays Global EM Local Currency bond index +0.1%

Highlights for the week ended Nov. 9:

  • Chinese President Xi Jinping stood his ground in a speech at the Shanghai trade fair, denouncing Donald Trump’s “law of the jungle” trading practices. He didn’t outline any new proposals that would suggest he was prepared to meet Trump’s demands
  • Democrats regained control of the U.S. House in midterm elections, paving the way for more checks on Donald Trump and a potentially weaker dollar
  • The Federal Reserve stood pat and stayed on course to hike in December; policymakers forecast “further gradual increases,” citing strong economic activity and job growth
  • Turkey’s inflation accelerated more than expected in October, to 25.2 percent from 24.5 percent. Finance Minister Berat Albayrak promised “more positive” data for the succeeding months; the lira was among the worst performers
    • Turkey and Argentina will undergo sharp contractions in the coming quarters, Moody’s Investors Service says in report titled “Global Macro Outlook: 2019-2020”
  • Mexican stocks, bonds and currency were whipsawed, tumbling after the incoming political party unveiled a proposal to cut bank commissions, then recovering as President-elect Andres Manuel Lopez Obrador said he wouldn’t make any changes for his first three years in office
  • Malaysia’s central bank kept its benchmark interest rate unchanged for a fifth meeting, helping support the economy as the government prepares to curb spending to restrain the budget deficit
  • Ministers from the Organization of Petroleum Exporting Countries and its allies meet in Abu Dhabi on Sunday to discuss scenarios including the possibility of cutting production again next year, according to delegates

Asia:

  • China’s current-account surplus rose again in the third quarter as exports held up despite trade tensions; the yuan was the worst performer in Asia
    • China’s exports in dollar terms rose 15.6 percent in October from a year earlier, exceeding estimates; growth accelerated as companies rushed to make shipments before President Donald Trump’s plans to increase tariff rates kick in
    • CPI rose 2.5 percent in October from a year earlier, in line with estimates, while PPI increased 3.3 percent, also the same as forecast in a Bloomberg survey
    • Whether China’s yuan hits the level of 7 to the dollar “isn’t that crucial,” as market participants have accepted flexibility in the exchange rate, People’s Bank of China adviser Ma Jun said
    • Chinese authorities said they will reduce the amount of time stocks can stay suspended, addressing a longstanding concern that investors can be left stranded for months, unable to sell
  • Indonesia’s rupiah was the best performer in emerging markets, while the nation’s bonds rallied; gross-domestic product rose 5.17 percent in the third quarter from a year earlier, in line with the median estimate in a Bloomberg survey; growth held above 5 percent for a seventh quarter, shaking off impact of a slew of rate hikes
  • Malaysia’s exports increased 6.7 percent in September from a year earlier, in line with estimates; trade surplus was at 15.27 billion ringgit ($3.7 billion)
  • Thailand’s government reiterates Feb. 24, 2019 as election date; election law could be effective by Dec. 11 and the election would then have to be held within 150 days or by May 9, 2019
  • South Korean President Moon Jae-in nominated former finance ministry spokesman Hong Nam-ki as new finance minister and deputy prime minister to replace Kim Dong-yeon
    • Planned meetings between U.S. Secretary of State Michael Pompeo and North Korean officials was postponed
  • Philippine stocks were among Asia’s worst performers as investors assessed key economic data; October inflation at 6.7 percent year-on-year, unchanged from September, remains at fastest pace since Feb. 2009; exports missed estimates, while trade deficit stood at $3.9 billion; GDP expanded 6.1 percent in the third quarter from a year ago, versus revised 6.2 percent in prior quarter

EMEA:

  • The Turkish Treasury sold 1.5 billion euros ($1.7 billion) of bonds maturing in February 2026 in the second debt sale in international markets in a month, taking funds raised this year to $7.7 billion
    • Turkey later canceled three scheduled local-bond auctions for November, citing reduced financing needs
    • Borsa Istanbul 100 Index fell; Tupras Turkiye Petrol Rafinerileri AS had its worst week since March after the company reported a profit that fell short of estimates and cut production guidance, while the Turkish government said the nation’s largest refiner will have to cut purchases of Iranian oil by about 75% from original levels under U.S. sanctions
  • Russia sold half of the bonds on offer in two ruble debt auctions following the midterm elections, potentially strengthening support for harsher sanctions on Russia
    • The U.S. State Department notified Congress that Russia ignored a deadline to swear off the use of chemical weapons, opening the possibility of new sanctions linked to a nerve-agent attack in the U.K.
  • South African manufacturing output increased at the slowest pace in six months in September
    • South Africa’s FTSE/JSE Africa All Shares Index underperformed
  • Mozambique has struck a restructuring deal with Eurobond holders, almost two years after defaulting. The southern African nation has agreed a pact in principle with holders of 60 percent of its bonds, that will see them swap into a new $900 million Eurobond maturing in 2033 and another instrument linked to future gas revenues
  • Poland kept its benchmark interest rate on hold as signs of a looming slowdown give it more time to support the economy
    • Poland’s WIG20 Index rose for a second week
  • Hungarian inflation accelerated well above the central bank’s target
    • Hungary’s BUX Index was among the world’s best performers, led higher by OTP Bank, the country’s biggest lender

Latin America:

  • Brazil’s Bolsonaro installed a transition team, pledging to tackle runaway pension spending; he appointed his first female cabinet member, Tereza Cristina, picking head of the farmers’ caucus in the lower house as agriculture minister
    • Brazil’s central bank minutes showed the monetary authority sees more clarity in domestic outlook since Bolsonaro was elected; pressure on prices from currency depreciation earlier this year largely contained, and inflation has risen to appropriate levels
    • Bolsonaro said central bank independence means there won’t be political interference
  • Argentina’s central bank will extend the use of a currency trading band into next year and will likely manage peso fluctuations less than at present
  • Chile’s September IMACEC index, a proxy for GDP, rose 0.4 percent from a month earlier, beating an estimate of a 0.2 percent decline
  • Chilean Central Bank published its minutes from Oct. 18 meeting, when bank hiked key rate by 25bps; BCCh said Chile has been growing above potential for four quarters, labor market is better than surveys show; the Chilean peso was the top performer in Latin America
  • Chile October CPI data at 0.4 percent on month, versus a 0.3 percent median forecast of analysts surveyed by Bloomberg; data prompted muted impact in the market as year-on-year inflation at 2.9 percent very near BCCh’s target

Upcoming data:

Monday, Nov. 12 India Industrial production
Turkey Current account balance 
Tuesday, Nov. 13 Czech Republic Current account
Poland Current account, trade 
Russia  GDP (May be on Wednesday)
Brazil Retail sales
Wednesday, Nov. 14 China Retail sales, industrial production
India Wholesale prices
Thailand Monetary policy meeting
South Korea Unemployment rate
Czech Republic, Hungary, Poland GDP
Poland, Bulgaria, Ghana, Nigeria  CPI 
South Africa Retail sales
Colombia Retail sales, trade balance
Thursday, Nov. 15 India Trade balance
Indonesia Monetary policy meeting, trade balance
Philippines Monetary policy meeting, overseas workers remittances
Poland CPI
Turkey Unemployment, Budget balance, Foreigners’ bond/stock investments, Expected inflation
Russia Gold/FX reserves
Egypt Monetary policy decision 
Friday, Nov. 16 Malaysia GDP 
Thailand Foreign reserves
Turkey Industrial production
Russia Money supply
Czech Republic PPI
Mexico Monetary policy meeting 
Argentina National CPI
Colombia GDP 

--With assistance from Aline Oyamada and Justin Villamil.

To contact the reporter on this story: Tomoko Yamazaki in Singapore at tyamazaki@bloomberg.net

To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net, Alex Nicholson, Alec D.B. McCabe

©2018 Bloomberg L.P.

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