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Tug-of-War Heats Up in Emerging Markets on Rates, Trade Outlook

Netty Ismail, Karl Lester M. Yap and Sydney Maki
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Tug-of-War Heats Up in Emerging Markets on Rates, Trade Outlook

(Bloomberg) -- If emerging markets have been caught between the prospect of easier monetary policy and the deepening trade war lately, then the next few days may merely underscore that conundrum.Policy makers in Indonesia to Brazil will probably shift to a more dovish stance at meetings this week, and the Philippine central bank may follow Russia and cut its key rate again after easing in May. Much of the rationale for the softer turn is the Federal Reserve’s own dovish tilt. The U.S. central bank meets June 18-19, with strategists divided on the prospect of lower rates as trade tensions cloud the global growth outlook.“We see assets as having to price in a bit more risk for global growth and trade policy,” said Patrick Wacker, a fund manager at UOB Asset Management, whose emerging-market debt fund has outperformed the market this year with a gain of 8.7%. “With near-term risks to the downside, we do not believe right now is the best time” to add assets that are sensitive to market swings, he said.China’s industrial output growth in May slowed to the weakest pace since 2002, highlighting the headwinds the Asian nation is facing. Rising tensions in the Persian Gulf may also weigh on emerging markets should it lead to a surge in oil prices, according to Singapore-based UOB Asset Management Ltd.Click to listen: Emerging Markets Weekly Podcast: Central Bank Meetings, TradeWill Doves Cry?Governor Benjamin Diokno said the central bank in the Philippines, which cut rates last month, is bound to ease policy further. The peso is among the best performing Asian currencies this yearMost economists expect Indonesia to hold its main interest rate on Thursday, but the decision is still worth keeping an eye on. The central bank sees room to cut interest rates amid growing risks to growth, Governor Perry Warjiyo told lawmakers on Monday, without giving an indication of timingPolicy makers have been reluctant to ease too quickly to avoid destabilizing the currency, the worst performer in the region this monthWhile Brazil’s central bank will probably hold its key rate Wednesday, investors will still be on watch for whether post-meeting statement reflects anxiety over disappointing growthThe real led emerging-market declines on Friday after Brazil’s Economy Minister Paulo Guedes chided lawmakers on changes to his pension overhaul proposal, fueling tension in Congress just as the government seeks support to approve the controversial billColombia’s central bank will probably maintain its key rate Friday as policy makers remain confident of a recovery throughout 2019, which may be supported by April’s economic activity index released the same dayTaiwan, which last moved its key rate in 2016 with a cut, will likely remain on holdUganda and Mozambique will also decide on rates this weekArgentina and TurkeyArgentina will report first-quarter GDP data Wednesday that is expected to show a fifth quarter of contraction. The peso outperformed its most emerging-market peers last week and bonds rallied after President Mauricio Macri named opposition leader Miguel Pichetto as his running mate in October’s electionThe economy is unlikely to recover before the vote and Macri’s re-election is the key driver for Argentina’s medium-term outlook, Brown Brothers Harriman & Co., wrote in a noteArgentina said it isn’t ruling out a cyberattack after what Macri called an “unprecedented” power blackout struck five South American countries on SundayMoody’s decision to downgrade Turkey’s credit rating is incompatible with fundamental indicators, Turkey’s Treasury and Finance Ministry said, adding that the country will never abandon free-market principlesTurkey’s central bank is introducing a new and cheaper liquidity facility for lenders in the latest effort to support the country’s battered marketsTariff Tit-for-TatsCommerce Secretary Wilbur Ross downplayed the prospect of a major trade deal emerging from a possible meeting between President Donald Trump and Chinese President Xi Jinping at the Group of 20 summit in Osaka, Japan, this monthRead more: Why a Trump-Xi Truce at G-20 Isn’t a Slam DunkTrump has repeatedly threatened to raise tariffs if Xi doesn’t meet with him in OsakaIndia imposed higher customs duties on a raft of U.S. goods effective June 16 in response to similar measures taken by Washington, according to a government notice\--With assistance from Alec D.B. McCabe, Philip Sanders and Tomoko Yamazaki.To contact the reporters on this story: Netty Ismail in Dubai at nismail3@bloomberg.net;Karl Lester M. Yap in Manila at kyap5@bloomberg.net;Sydney Maki in New York at smaki8@bloomberg.netTo contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Shaji MathewFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

(Bloomberg) -- If emerging markets have been caught between the prospect of easier monetary policy and the deepening trade war lately, then the next few days may merely underscore that conundrum.

Policy makers in Indonesia to Brazil will probably shift to a more dovish stance at meetings this week, and the Philippine central bank may follow Russia and cut its key rate again after easing in May. Much of the rationale for the softer turn is the Federal Reserve’s own dovish tilt. The U.S. central bank meets June 18-19, with strategists divided on the prospect of lower rates as trade tensions cloud the global growth outlook.

“We see assets as having to price in a bit more risk for global growth and trade policy,” said Patrick Wacker, a fund manager at UOB Asset Management, whose emerging-market debt fund has outperformed the market this year with a gain of 8.7%. “With near-term risks to the downside, we do not believe right now is the best time” to add assets that are sensitive to market swings, he said.

China’s industrial output growth in May slowed to the weakest pace since 2002, highlighting the headwinds the Asian nation is facing. Rising tensions in the Persian Gulf may also weigh on emerging markets should it lead to a surge in oil prices, according to Singapore-based UOB Asset Management Ltd.

Click to listen: Emerging Markets Weekly Podcast: Central Bank Meetings, Trade

Will Doves Cry?

Governor Benjamin Diokno said the central bank in the Philippines, which cut rates last month, is bound to ease policy further. The peso is among the best performing Asian currencies this yearMost economists expect Indonesia to hold its main interest rate on Thursday, but the decision is still worth keeping an eye on. The central bank sees room to cut interest rates amid growing risks to growth, Governor Perry Warjiyo told lawmakers on Monday, without giving an indication of timingPolicy makers have been reluctant to ease too quickly to avoid destabilizing the currency, the worst performer in the region this monthWhile Brazil’s central bank will probably hold its key rate Wednesday, investors will still be on watch for whether post-meeting statement reflects anxiety over disappointing growthThe real led emerging-market declines on Friday after Brazil’s Economy Minister Paulo Guedes chided lawmakers on changes to his pension overhaul proposal, fueling tension in Congress just as the government seeks support to approve the controversial billColombia’s central bank will probably maintain its key rate Friday as policy makers remain confident of a recovery throughout 2019, which may be supported by April’s economic activity index released the same dayTaiwan, which last moved its key rate in 2016 with a cut, will likely remain on holdUganda and Mozambique will also decide on rates this week

Argentina and Turkey

Argentina will report first-quarter GDP data Wednesday that is expected to show a fifth quarter of contraction. The peso outperformed its most emerging-market peers last week and bonds rallied after President Mauricio Macri named opposition leader Miguel Pichetto as his running mate in October’s electionThe economy is unlikely to recover before the vote and Macri’s re-election is the key driver for Argentina’s medium-term outlook, Brown Brothers Harriman & Co., wrote in a noteArgentina said it isn’t ruling out a cyberattack after what Macri called an “unprecedented” power blackout struck five South American countries on SundayMoody’s decision to downgrade Turkey’s credit rating is incompatible with fundamental indicators, Turkey’s Treasury and Finance Ministry said, adding that the country will never abandon free-market principlesTurkey’s central bank is introducing a new and cheaper liquidity facility for lenders in the latest effort to support the country’s battered markets

Tariff Tit-for-Tats

Commerce Secretary Wilbur Ross downplayed the prospect of a major trade deal emerging from a possible meeting between President Donald Trump and Chinese President Xi Jinping at the Group of 20 summit in Osaka, Japan, this monthRead more: Why a Trump-Xi Truce at G-20 Isn’t a Slam DunkTrump has repeatedly threatened to raise tariffs if Xi doesn’t meet with him in OsakaIndia imposed higher customs duties on a raft of U.S. goods effective June 16 in response to similar measures taken by Washington, according to a government notice

--With assistance from Alec D.B. McCabe, Philip Sanders and Tomoko Yamazaki.

To contact the reporters on this story: Netty Ismail in Dubai at nismail3@bloomberg.net;Karl Lester M. Yap in Manila at kyap5@bloomberg.net;Sydney Maki in New York at smaki8@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Shaji Mathew

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.