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Emerging Markets Currencies Drop as Dollar Buoyant Before Fed Policy

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Emerging Markets Currencies Drop as Dollar Buoyant Before Fed Policy

(Bloomberg) -- Emerging-market currencies and stocks weakened as traders eased bets on a more aggressive rate cut by the Federal Reserve. The impact of the dollar’s biggest weekly advance since February and concerns about global growth after the International Monetary Fund further reduced its forecasts overcame progress on U.S. and China trade talks.

The following is a roundup of emerging-markets news and highlights for the week ending July 26.

Highlights:

U.S. Trade Representative Robert Lighthizer and senior U.S. officials are set to travel to China for the first high-level, face-to-face negotiations since talks broke down in MayChina’s government hopes that the U.S. will halt a proposed bill that would stop Huawei Technologies Co. from accessing U.S. patents, Commerce Ministry Spokesman Gao Feng saidThe White House invited many of the biggest U.S. technology companies to discuss issues including a possible resumption of sales to HuaweiThe International Monetary Fund further reduced its global growth outlook, already the lowest since the financial crisis, and suggested that policy “missteps” on trade and Brexit could derail a projected reboundU.S. economic growth slowed in the second quarter by less than forecast as consumer spending topped estimates, though business investment and exports were weakerPresident Donald Trump announced a bipartisan deal to suspend the U.S. debt ceiling and boost spending levels for two years, averting the risk of a damaging payments defaultTrump has rejected, for now, the idea of aggressive currency intervention that could give the U.S. an edge with its trading partners, according to two people familiar with the matterPresident Mario Draghi set the stage for his European Central Bank to deliver another round of monetary stimulus in September to combat the euro area’s severe economic slowdownChina’s central bank governor said the country’s current interest rates are at an appropriate level, and the bank will make decisions on rates based on domestic considerationsNorth Korea launched at least two short-range ballistic missiles into the sea off its eastern coast, signaling new strains with the U.S. just weeks after Trump and Kim Jong Un agreed to restart talksNorth Korea said that the launches were a warning to South Korean “warmongers”Turkey’s new central banker delivered the biggest interest-rate cut in at least 17 years, putting President Recep Tayyip Erdogan’s unconventional policy goals into practice less than three weeks after getting the job. It slashed the benchmark borrowing rate by 425 basis points to 19.75%Within 10 minutes of the decision, the lira reversed losses and advanced the most in emerging markets as traders coped with the cut by focusing on the currency’s yield appealIran will make “utmost efforts” to allow the safe passage of tankers in the Persian Gulf region, its deputy foreign minister said, while urging European nations to act more forcefully against U.S. sanctions on its oil exportsSouth Africa may increase its borrowing plans following the latest bailout announced for the struggling state-owned power utility Eskom Holdings SOC Ltd., Finance Minister Tito Mboweni told lawmakers Tuesday. Eskom, seen as the biggest threat to the economy, will get an additional 59 billion rand ($4.2 billion) spread over two yearsThe decision to more than double the financial support for Eskom is “credit negative” for the sovereign rating, Moody’s Investors Service said

Asia:

China is planning to change pricing rules of its system for selling collateral from defaulted interbank bond transactions, after anonymous auctions failed to offer big enough discounts to draw buyersChinese government is said to have approved several domestic companies to buy U.S. cotton, corn, sorghum and pork without being subject to hefty retaliatory tariffsIndia’s central bank Governor Shaktikanta Das said policy makers have effectively delivered more easing than the three interest-rate cuts this year suggest, signaling a more cautious stance on future actionThe government is said to be considering raising $10 billion of global bonds at one go as early as October, with the yen and euro marked as preferred currenciesPrime Minister Narendra Modi’s office would favor selling rupee-denominated bonds abroad instead, according to a report on Thursday by ET Now television channel, citing Cogencis news agencySubhash Chandra Garg, a top Ministry of Finance bureaucrat who was overseeing India’s plan to sell its maiden offshore sovereign bonds, is seeking early retirement after he was abruptly moved out of the role, according to people familiar with the matterThe Bank of Korea will have to consider responding if the economic situation worsens, Governor Lee Ju-yeol told lawmakers on TuesdayA rush of government spending helped prop up South Korea’s economy in the second quarter. Gross domestic product expanded 1.1% from the previous quarter, topping economists’ median estimate of 0.9%U.S. technology companies urged Japan and South Korea to negotiate a resolution to a dispute that threatens to up-end the global supply chain that the world’s top electronics brands rely on to make their productsIndonesia’s low inflation and the need to push growth momentum will provide room for accommodative monetary policy, according to central bank Governor Perry WarjiyoThailand is getting closer to a sovereign credit-rating upgrade after Moody’s Investors Service joined Fitch Ratings in boosting the nation’s outlook to positive from stableBank of Thailand said it has situation-dependent steps left for the bahtExports fell less than expected in June, while its trade surplus widenedThe Philippines central bank can wait for more economic data before easing monetary policy again, a member of the policy-setting board saidBangko Sentral ng Pilipinas will look at how strong growth drivers delivered in deciding further monetary easing, Governor Benjamin Diokno saidTaiwan’s intelligence chief quit after accusations that an agent attempted to use President Tsai Ing-wen’s overseas trip to secure some $200,000 worth of tax-free cigarettes. Taiwan names Chiu Kuo-cheng to succeed Peng Sheng-chu as National Security Bureau Director-GeneralAn American warship’s sail past Taiwan was the sixth such voyage this year -- the most since Trump took office -- as the U.S. ramps up military support for the democratically run islandThe Taiwan issue is important and sensitive and China urges the U.S. to abide by the One-China policy, China’s Foreign Ministry spokesman Hua Chunying saidMalaysia is on track to fully restore its fiscal health by 2021 as open competitive tenders and zero-based budgeting help bolster government finances, Finance Minister Lim Guan Eng saidMalaysia restarted the China-linked East Coast Rail Link project after downsizing building costs by a thirdInflation accelerated to 1.5% in Jun, the fastest pace in more than one year

EMEA:

South Africa’s inflation rate unexpectedly remained at 4.5% in JuneThe central bank governor urged the government to do more to remove obstacles to economic growth, saying monetary policy can only do so muchBeji Caid Essebsi, who was Tunisia’s first freely elected president in decades, has died. He was 92Nigeria’s central bank kept its benchmark rate on hold to battle persistently high inflation, even as it seeks to boost lending to grow the economyKenyan police arrested Treasury Secretary Henry Rotich after the East African nation’s prosecutors ordered his detention in connection with irregular advance payments for the construction of two damsPresident Uhuru Kenyatta appointed a little-known minister as acting head of the TreasuryThe central bank kept its benchmark rate unchanged for a sixth consecutive time, saying inflation expectations remain well-anchoredHungary’s central bank left its policy unchanged after a “very mild” tightening step in JuneThe Bank of Russia reduced interest rates for a second time this year and signaled more cuts to come, as inflation and economic growth slowTrump is considering how to respond to Turkey’s decision to accept a Russian missile-defense system, which has divided the two NATO allies and fueled outrage in Congress, according to senators who met with him TuesdayPresident Volodymyr Zelenskiy won a crushing victory in Ukraine’s parliamentary ballot, capitalizing on pledges to crack down on corruption, fix the economy and end the conflict with Russian-backed separatistsOman tapped the bond market with a dollar-denominated offering for the first time this year to plug its budget deficit after global borrowing costs plungedThe sovereign sold $3 billion of notesEgypt and Israel are discussing new routes to transport natural gas to the Arab country, which would allow the companies developing Israel’s largest natural gas reservoirs to export beyond the amounts stipulated in a $15 billion deal signed last yearThe United Arab Emirates said its military draw-down from Yemen should be seen by the Iran-backed Houthi rebels as a “critical opportunity” to end the war with the Saudi-led coalitionTrump vetoed three bipartisan measures passed by Congress intended to block arms sales to Saudi Arabia and the United Arab EmiratesKuwait said it’s working with Saudi Arabia to resume oil production in the neutral zone between them that has been shuttered for at least four years

Latin America:

Brazil traders increased bets on a 50-basis point rate cut at the next central bank meeting after mid-July inflation came in below expectationsEconomists cut their end-2020 estimate for the benchmark Selic rate to 5.75% from 6%, according to a weekly central bank surveyPresident Jair Bolsonaro will allow workers to access cash from their severance funds, in an attempt to boost an economy teetering on the edge of recessionBrazilian top court justice ordered Petrobras to refuel two Iranian ships stranded off the country’s cost after the state-controlled oil company refused to do so for fear of U.S. sanctionsFederal police arrested people for allegedly hacking mobile phones belonging to various government officials, including that of the PresidentMexico’s economy contracted for a second consecutive month in May as it teeters on the edge of recessionRetail sales jumped in May by the most since Andres Manuel Lopez Obrador took office on soaring e-commerce and a rebound for department storesAnnual inflation rate fell to the lowest level in more than two years in early July, boosting expectations that the central bank will cut borrowing costs as soon as SeptemberSenate, central bank, economy and finance ministries are studying a proposal to give Banxico dual mandate, according to Senate Majority Leader Ricardo MonrealArgentina will keep its benchmark interest rate at or above 58% until at least Aug. 15 as it seeks to avoid major currency volatility before next month’s crucial primary vote for the presidential electionArgentina faces the risk of a debt restructuring if the government halts reforms to fix the economy after elections in October, according to Moody’sPresident Mauricio Macri is now on a statistical dead heat in the elections’ first round against the Fernandez-Fernandez ticket, a poll showedChubut province is seeking a debt reprofiling for its U.S. dollar bonds, pushing the maturities to around 12 years from a maximum length of seven years nowColombia’s central bank left its policy rate unchanged, holding out against the trend for monetary easing across emerging marketsColombia is using questionable accounting practices to hit its fiscal targets, according to Guillermo Perry, a former finance minister who is one of the people responsible for setting the goals

--With assistance from Alex Nicholson and Philip Sanders.

To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at yteso1@bloomberg.net;Netty Ismail in Dubai at nismail3@bloomberg.net;Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net;Selcuk Gokoluk in London at sgokoluk@bloomberg.net;Colleen Goko in Johannesburg at cgoko2@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Karl Lester M. Yap, Joanna Ossinger

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