No Rest for Emerging Markets as Trade Jolts Herald a Wild Week

LAGOS (Capital Markets in Africa) – Emerging markets got little relief as the escalating trade war between the U.S. and China hurt most major currencies and sent stocks to their lowest level since December.

With OPEC clashing over output, looming Turkish elections and the potential for further fallout from Argentina’s foreign-exchange crisis, there was no respite in sight.

Developing-nation currencies have retreated for three consecutive weeks and are now on pace for their biggest quarterly decline since September 2015. They were set for a fifth day of losses on Monday, led by the South Korean won and Russia’s ruble. Equities extended their worst weekly performance in a month.

Tit-for-tat trade levies between China and the U.S. are casting a shadow over markets. After the U.S. announced tariffs on $50 billion of Chinese imports last week, the Asian nation struck back with its own plan for levies on American exports.

“They have the potential to disrupt an otherwise positive economic outlook, if they were to trigger broad-based retaliatory actions,” said Silvia Dall’Angelo, a London-based senior economist at Hermes Investment Management. “The uncertainty concerning trade policies has the potential to negatively affect confidence, in turn holding back investment decisions.”

Here’s a roundup of the events on traders’ radar as the week begins:

MSCI Decision
On Wednesday, MSCI Inc. could stamp its approval on Saudi Arabia and Argentina as members of its emerging-market index. The former is more likely.

Finance ministers and central bank presidents from Brazil, Argentina, Uruguay and Paraguay will convene Sunday at the Mercosur summit. The meeting concludes Monday with a sit-down among heads of state. The bloc will discuss strategies for trade talks with the EU.

Colombia on Sunday elected Ivan Duque, a market-friendly U.S.-educated lawyer, by a large margin over Gustavo Petro, a former leftist guerrilla and mayor, in the first presidential election since signing a historic peace accord with Marxist rebels.

Meanwhile, Frans Timmermans, principal vice president of the European Commission, will kick off the week by visiting Poland amid concern about court independence. The zloty has fallen about 8 percent this quarter.

Central Banks
Traders will monitor monetary policy decisions from the central banks of Thailand, Taiwan and the Philippines this week. Bangko Sentral ng Pilipinas is set to decide on Wednesday whether to proceed with a second increase in the benchmark interest rate after inflation reached a five-year high after last month’s move. The Philippine peso is the worst-performing Asian currency this year, with losses of more than 6 percent against the dollar.

Trading will resume in Indonesia on Wednesday after a seven-day holiday. Investors will be processing a slew of events, from the Fed’s much-anticipated rate hike to dovish guidance from the ECB. The rupiah is the best performer in the region this quarter after the nation’s central bank hiked its policy rate twice in two weeks to stabilize markets.

• Brazil’s central bank may keep borrowing costs unchanged at 6.5 percent for a second straight meeting on Wednesday after a 10-day nationwide truckers’ strike choked the economy and sent the nation’s stock index to a nine-month low.
• Mexico’s central bank will probably keep its key rate unchanged at 7.5 percent on Thursday as economists see inflation slowing this year to within the bank’s target range.
• In South Africa, traders will look to data released Wednesday on the consumer price index for May and the first-quarter current-account balance for clues on the policy path of the South African Reserve Bank.
• The next key test for traders in Hungary will be a rate meeting on Tuesday, where policy makers will renew their economic forecasts and give updated policy guidance. Currency markets are eager for them to strike a more cautious note, according to TD Securities’ Cristian Maggio, after the forint fell to a 13-month low.
• Poland will release May macro data, including wages, employment or output, followed by central bank minutes and money supply.

Source: Bloomberg Business News