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Reality Check Looms for Emerging Markets on Trade and China

Netty Ismail, Lilian Karunungan and Sydney Maki
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Reality Check Looms for Emerging Markets on Trade and China

(Bloomberg) -- Sputtering progress toward a trade deal and signs of weakness in the Chinese economy are looming as the biggest threats to the wave of optimism spreading across emerging markets.

Before Friday, developing-nation stocks had touched the highest level since May and currencies held near a three-month high. Then President Donald Trump rattled traders by saying the U.S. hadn’t agreed to a tariff rollback with China, dimming hopes for a preliminary trade deal next month. Beijing wants a deal “much more than I do,” Trump weighed in again on Saturday.

A slew of data is forecast to show weakness spread across China’s economy in October, with production slowing. All of which means the yuan will probably continue to set the tone for trading as its correlation with other emerging-market currencies remains near the record high reached in July. The Chinese currency weakened on Monday following a five-week advance, its longest winning streak since February 2018.

“There remains considerable uncertainty about how a phase-one agreement will be secured,” said Mansoor Mohi-uddin, a Singapore-based senior macro strategist at NatWest Markets. “Upside strength in the yuan may also be limited by renewed monetary easing.”

Read more in China Insight: Look Beyond the Phase One Frenzy to Assess Yuan

Listen here for the emerging markets weekly podcast.

Rate Cuts Seen in Mexico, Egypt

Mexico’s central bank is expected to cut interest rates for the third time this year on Thursday, which NatWest Markets expects to mark the start of faster, deeper reductions that could weigh on the peso. Industrial production probably fell from a year earlier in September, data is expected to show on MondayWith inflation slowing to its lowest level in over nine years, Egypt’s central bank will likely add to this year’s 350 basis points of rate cuts. The Monetary Policy Committee will probably reduce its key rate by a further 100 basis points to 12.25% Thursday, according to a Bloomberg surveyThe Philippine central bank’s interest-rate decision on the same day will probably result in a pause in monetary easing after Governor Benjamin Diokno said this month the authorities have “done more than enough for the year.” Policy makers have delivered 75 basis points of rate cuts and also lowered the reserve ratio. There is also less need to support the economy after growth rebounded to 6.2% in the third quarter“Monetary policy is supportive across regions, but any optimism on growth also relies on the ongoing trade talks to deliver the expected de-escalation,” Barclays Capital Inc. economists Christian Keller in London and Michael Gapen in New York wrote in a report

Economic Data and Events

China’s economic reports, which will also include retail sales, will give the latest read on how growth is holding up in the wake of additional U.S. tariffs that took effect in SeptemberThe People’s Bank of China said Monday the nation’s credit growth slowed more than expected last month to the weakest pace since at least 2017, signaling that efforts to prop up the economy through bank lending still aren’t workingInvestors will watch Argentina’s consumer price inflation data for October, released Thursday, as they await details on President-elect Alberto Fernandez’s economic plan. The peso is the worst-performing currency in the world this yearSeptember retail sales and economic activity numbers for Brazil come on WednesdayPeru’s September economic activity index will probably indicate growth is recovering below potential, which may help explain why the central bank unexpectedly cut interest rates in NovemberMalaysia will probably report on Friday that third-quarter GDP slowed as exports struggled; Poland, Hungary, the Czech Republic, Romania and Ukraine will release GDP data on ThursdayTrade-deficit countries India and Indonesia will report October figures for exports and imports on FridayIndia is also due to release October consumer-price and wholesale-price inflation. The central bank last month maintained its sub-4% inflation projections for the year ahead, signaling room for more easing after reducing the benchmark rate five times this yearPresident Trump is scheduled to meet Turkish counterpart Recep Tayyip Erdogan at the White House on Wednesday amid lingering rifts over Ankara’s purchase of a Russian missile-defense system and a U.S. case against Turkish state-lender HalkbankTurkey is set to unveil its current account balance on Tuesday and industrial production data on ThursdaySaudi Aramco will allow investors to start bidding for shares in the world’s most-profitable company from Nov. 17. It left potential buyers in the dark about the size of the stake it plans to sell and the pricing rangeRead more: Aramco IPO Will Lean on Saudis and China as Fund Managers BalkRomanian President Klaus Iohannis won in Sunday’s first round of voting, clinching about 37% of votes, according to preliminary results. A runoff will be held two weeks later against Social Democrat leader Viorica Dancila, whose government was ousted last month and had about 23% of the votesThe finance ministers of Ghana and Zimbabwe will present their 2020 budgets on Thursday

--With assistance from Karl Lester M. Yap and Carolina Wilson.

To contact the reporters on this story: Netty Ismail in Dubai at nismail3@bloomberg.net;Lilian Karunungan in Singapore at lkarunungan@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, Justin Carrigan, Paul Wallace

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