Agility is the watchword as trade tensions jolt emerging markets | Fin24
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Agility is the watchword as trade tensions jolt emerging markets

Aug 05 2019 16:36
Netty Ismail, Marcus Wong and Justin Villamil

The trade war is taking a turn for the worse just as investors digest one of the roughest weeks for emerging markets this year.

China responded to Donald Trump’s tariff threat with another escalation of the trade war on Monday, letting the yuan slide past 7 to the dollar to the weakest level in more than a decade. Trump last week threatened to put 10% tariffs on a further $300bn of the country’s goods. The latest showdown puts the Asian nation’s trade data on Thursday in the spotlight amid concern the year-long dispute is hurting its economy.

“The risk to emerging-market assets in the near term is skewed to the downside,” said Patrick Wacker, a fund manager at UOB Asset Management Ltd. in Singapore who locked in some profit ahead of the Federal Reserve’s decision. “With assets having to price in more risk for global growth and trade policy, we do not believe right now is the best time to add bonds most sensitive to market swings.”

Emerging-market currencies continued their decline on Monday, falling almost 1%, while stocks dropped to the lowest since January on a closing basis. Assets have been under pressure since last week after the Fed, while cutting rates for the first time in more than a decade, stopped short of signalling it was the start of an aggressive easing cycle. Morgan Stanley turned bearish on emerging-market credit soon after removing a bullish call on currencies.

The drop in the yuan is expected to put quite a sharp downward pressure on currencies of economies with deep ties with China such as the South Korean won and Taiwan dollar, while the Indonesian rupiah and Indian rupee are expected to remain more resilient, according to Tsutomu Soma, general manager of the investment trust and fixed-income securities at SBI Securities in Tokyo.

The central banks of the Philippines and India are forecast to lower rates this week, and South Korea is preparing to announce details of a plan to remove Japan from its easy-trade list as the countries’ political standoff intensifies.

“This once again shows that it’s foolish to make long-term predictions on markets and anchor positions to predictions,” said Nader Naeimi, AMP Capital’s head of dynamic markets in Sydney. “I can’t remember any other time that agility and flexibility was so paramount.”

Trump Thumps China

The Trump administration is expected to publish in “days” the final list of Chinese goods subject to the new 10% tariff effective Sept. 1
The Chinese government has asked its state-owned enterprises to suspend imports of US agricultural products
China’s exports and imports likely fell in July from a year earlier, dented by higher US tariffs.

More Rate Cuts

Almost of all the economists surveyed by Bloomberg forecast the Reserve Bank of India will cut the repurchase rate by 25 basis points to 5.5% Wednesday, after having eased three times so far this year. The rupee was the best-performing currency in emerging Asia in the past six months.

Consensus is that the Philippine central bank will reduce its key rate by 25 basis points, its second cut this year
Peru’s central bank may consider cutting its benchmark rate on Friday after officials signalled additional stimulus is an option amid weaker-than-expected economic growth and tame inflation.

Thailand is set to keep rates on hold Wednesday

Brazil’s Pension Overhaul

Congress returns from a two-week recess to hold a second-round vote on President Jair Bolsonaro’s flagship pension overhaul
Brazil’s central bank minutes are due for release on Tuesday after the country kicked off a monetary-easing cycle on July 31. The real has outperformed all Latin American peers except Mexico’s peso so far this quarter.

The nation will release inflation data and June retail sales, which will signal whether the country tipped into a recession

Economic Highlights

The lira erased losses on Monday. Data showed a slowdown in Turkish inflation took a pause in July as the government rebuilds its coffers with higher taxes while the central bank loosens monetary policy.

Consumer prices rose 16.7% from a year earlier after a three-month deceleration.

Indonesia’s economic growth was little changed in the second quarter, with gross domestic product rising 5.05% from a year ago. The Bank Indonesia governor previously linked future monetary-policy easing to the domestic growth outlook.

The Philippines will report GDP data on Thursday, before the central bank rate decision.

Investors will be eyeing trade numbers from the Philippines and Taiwan due Wednesday.

Colombia will publish CPI data on Monday, Taiwan and the Philippines on Tuesday.

Argentina is set to release construction and industrial statistics on Tuesday that may provide evidence of the economy’s recovery. The figures will be published before a key primary vote for the presidential election on Tuesday.

June economic activity data in Chile, due on Monday, may support the case for a rate cut in September by the central bank

donald trump  |  china  |  asia  |  trade war  |  emerging markets


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