(Bloomberg) -- Emerging markets head into the last full trading week before the U.S. election with stocks and currencies near their highest levels since January and dollar-bond spreads close to their narrowest since February.Don’t expect it to get much better than that in coming days.Caution is likely to be the watchword for investors, with the Nov. 3 vote set to reveal not just whether Joe Biden’s opinion-poll lead over Donald Trump will propel him to victory, but also determine the fate of the much-anticipated U.S. stimulus package. And there’s always the risk of a contested result.“It makes sense for emerging-market investors to maintain only light (risk-bullish) positions in the remaining days before the U.S. election,” a Credit Suisse SA team including Kasper Bartholdy, managing director of fixed-income strategy in London, wrote in a report. “This is in part because we see sizable residual scope for the ‘Biden/Trump U.S. voter-support gap’ to fluctuate. It is also because we see a large risk that ongoing negotiations in the U.S. about pre-election fiscal-policy stimulus will falter and cause some temporary market consternation.”That investors are wary of putting too much on the line right now is already apparent. Implied currency volatility declined for a fourth week in the past five trading days, the longest streak since June. The main MSCI indexes of stocks and currencies barely budged Friday. A Bloomberg-Barclays gauge of emerging-market dollar bonds was also little changed.That’s not to say there aren’t plenty of emerging-market events to keep traders on their toes this week. China is reconsidering its strategy for the internationalization of the yuan and planning for more supply-side reform as it prepares to hammer out the country’s future economic blueprint. South Africa will present its medium-term budget, which will set out the nation’s spending and borrowing targets for the next three years. And there are monetary-policy meetings in Brazil and Colombia.Listen: EM Weekly Podcast: Election Countdown; China Plenum; FX ReportChina’s Five-Year PlanThe central committee of China’s Communist Party meets Monday through Thursday to discuss the next five-year plan. At the close of the plenum there should be a broad sense of what the plan will be, although the details will only be revealed in MarchThe plenum is a chance for China’s planners to emphasize their vision for technological leadership and supply-side reformsSome emphasis may also be placed on expanding domestic financial markets, which may attract more foreign capital, as opposed to allowing too much growth of already bloated bank loan booksThere’s also likely to be a debate about whether to announce a growth target. An ambitious number, say above 5-5.5%, would suggest more emphasis is being placed on the quantity of growth rather than its quality, and may increase the possibility of additional stimulusThe nation recently completed a comprehensive review of its strategy for the internationalization of the yuan. The government can be more proactive with policy support to facilitate the role of the markets, said Zhu Jun, director general of the People’s Bank of China’s international divisionThe currency reached the strongest level in more than two years last week as the dollar weakened and China’s recovery from the pandemic showed signs of broadening in SeptemberChina will publish September industrial profits on TuesdayOfficial October PMI numbers due on Saturday are expected to show continued expansionCentral Banks on HoldBrazil’s central bank will probably hold its key interest rate steady on Wednesday as investors search for clues on the policy makers’ next steps, according to Bloomberg EconomicsOn Friday, money managers will watch for August unemployment figures, September’s primary budget balance and a reading of net debt as a percentage of GDPColombian policy makers may keep their key interest rate at a record low on Friday, according to the median forecast of economists surveyed by BloombergThe Colombian peso is the best-performer among Latin American peers this month after its Mexican counterpartMedium-Term BudgetSouth Africa’s Finance Minister Tito Mboweni will present the medium-term budget policy statement on Wednesday after asking parliament to delay it by a week so the Treasury can assess the implications of the government’s economic recovery plan on spendingThere’s “limited potential” for the rand to strengthen beyond the 16.08 per-dollar intraday peak seen in September and investors should trim their positions in local-currency bonds before then, according to Credit SuisseCredit Suisse sees a “high chance that the Treasury will fail to deliver meaningful fiscal consolidation measures in the near term,” a team including Kasper Bartholdy saidThe rand is the best-performing developing-nation currency this month after the Mexican pesoData and EventsSouth Korea will announce third-quarter GDP on Tuesday, with economists projecting growth of 1.3% over the previous three monthsThe country will also release October consumer confidence on Wednesday, and November business confidence on Thursday. Industrial production for September due on Friday is expected to show the first year-on-year growth since MarchOctober trade numbers are due on Sunday. The month had fewer working days than October 2019, meaning the data are expected to show a year-on-year declineSouth Korea’s won was the strongest currency in Asia again last week despite warnings of intervention from authoritiesMalaysia’s September trade accounts are due on Wednesday, with the consensus for a slight widening of the surplusThe ringgit was little changed last week amid a decline in political noiseHowever, the King’s refusal to grant the Government a state of emergency to tackle the pandemic -- which was viewed by the opposition as an attempt by the premier to retain control amid a power struggle -- will keep markets on the alertThailand’s cabinet is due to meet Monday and Tuesday to discuss how to respond to the ongoing anti-government protestsSeptember manufacturing production is due on Wednesday, with economists forecasting a slower pace of decline. Balance-of-payments and trade numbers are due on FridayThe baht was Asia’s worst-performing currency last week after the Indian rupee. The currency dropped despite attempts by the prime minister to calm political tensions by lifting the state of emergencyRead: Here’s What May Happen Next in Thailand’s Historic ProtestsTaiwan will release third-quarter GDP on Friday, with a small return to growth anticipatedTaiwan’s dollar maintained its recent pattern of strengthening during the day and erasing its advance toward the close of tradingTurkey’s central bank will reveal its latest inflation forecast in its quarterly report on WednesdayThe lira weakened for a ninth week in the five days through Friday, its longest weekly slide since 1999After an unexpected rate hike in September stoked bets that the central bank had shifted to a hawkish stance, policy makers surprised the markets by keeping the policy rate on hold last weekChile voted overwhelmingly on Sunday to draft a new constitution, which is expected to blunt the neo-liberalism that has made it an investor favorite but plunged it into riots over inequalityCentral bank minutes, to be released on Friday, will likely reflect the monetary authority’s plans to keep its rate steady through 2021Unemployment, retail sales and copper-production figures for September, also expected on Friday, will provide clues on how the nation’s economy has fared amid the pandemic and uncertainty over constitutional reformA preliminary reading of Mexico’s third-quarter gross domestic product, scheduled for Friday, is expected to show that activity bottomed in the second quarter, according to Bloomberg EconomicsArgentine traders will be watching for any developments on how the government plans to handle its currency crisis as the gap between the official peso and the blue-chip swap rate widensU.S. Treasury Secretary Steven Mnuchin is unlikely to release a much-watched report on international currency manipulation that was due in April until after the Nov. 3 presidential election, according to people familiar with the matterEmerging-market currencies could rally 5% by the end of the year should Biden win the presidential election, Morgan Stanley strategists including James Lord and Jaiparan Khurana wrote. In its recommendation to investors, the firm said it entered long positions in the South African rand and Russian ruble against the dollar, and has moved to shorts on the U.S. currency versus the Brazilian real, Mexican peso and Colombian pesoFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Traders across the world may be coming around to the idea that the U.S. election isn’t going to be the tumultuous event it was once expected to be.But the real believers seem to be in emerging markets.Optimism that the November election result will go uncontested and speculation a U.S. stimulus package will be agreed whatever the outcome are damping concern about fluctuations through year-end. Yet, while U.S. VIX futures declined last week as bets on likely price volatility eased, the drop for emerging markets was more pronounced.“It does appear that emerging-market investors are slightly more sanguine about risks through the end of the year than what you’re seeing in developed markets,” said Nick Stadtmiller, a strategist at Medley Global Advisors in New York. “As long as global liquidity remains ample, and as long as global markets at least hold their ground, I would expect emerging-market assets to perform well. Yields on many emerging-market assets are high, especially relative to rock-bottom yields on developed market assets.”Falling volatility may give investors more confidence to put cash into an asset class enjoying one of its best phases since the virus-induced global sell-off in March. Citigroup Inc. said last week the worst is over for developing-nation assets and Morgan Stanley is betting volatility will continue to ease as the outcome of the November vote becomes clearer.Emerging-market equities and currencies climbed to an eight-month high on Friday, while local-currency bonds had their best week since May on the prospect of U.S. fiscal stimulus. One-month implied volatility on the Brazilian real, South African rand and Russian ruble fell by the most among peers last week, signaling improved appetite for risk assets.“The markets are positioned themselves for a fresh dose of fiscal stimulus and former VP Biden winning the election and on the top of that Democrats regaining control over Senate,” said Piotr Matys, a strategist at Rabobank in London. “Even if there is no agreement ahead of November 3, the markets know that it is just a matter of time when a fiscal package will be implemented.”Listen: EM Weekly Podcast: China FX Rule Changes, Central Bank MeetingsYuan ImpactThe yuan led emerging-market currencies lower on Monday after China’s policy makers acted to restrain a rally in the currency by removing rules that made betting against the currency expensiveFinancial institutions will no longer need to set aside cash when purchasing foreign exchange for clients through onshore currency forwards, effective from Monday, the People’s Bank of China said on the weekendThe official fixing rate was less weak than some traders has feared, despite being below Bloomberg consensus. Past rule changes have tended to see greater divergences of the fixing from expectations and were generally accompanied by interventionThe yuan remains on course to strengthen, with moves to make it cheaper to short the currency only blunting the rally in the short term, according to HSBCChina will publish trade data on Tuesday. The healthy trade surplus has been part of the strong yuan story, and consensus forecasts predict another 10% year-on-year increase in exports to leave the surplus near $60 billionInflation data are due on Thursday. The headline rate is expected to dip below 2% year-over-year for the first time since February 2019Monetary data are due sometime in the week. Aggregate financing is expected to show a slowdown from the rapid clip last monthRate DecisionsBank Indonesia’s rate decision comes on Tuesday. Consensus heavily favors no change as policy makers seek to protect the rupiah. However, the acute need for domestic stimulus, plus the fact that headline inflation has been below the central bank’s target range for five months may mean that a cut is consideredThe rupiah appreciated by more than 1% last week, and is currently comfortably stronger than the central bank’s perceived stress point of 15,000 per dollarOn Thursday, Indonesia will report September trade numbers. A continuation of the Covid-induced import slump should keep the trade account in surplusBank of Korea meets Wednesday and is unanimously expected to stand pat. With rates close to the effective lower bound, the hurdle to further easing is highKorean won one-month NDFs posted Asia’s strongest performance last week as odds shifted more decisively toward a Joe Biden election victory and yuan appreciation spilled overThe Monetary Authority of Singapore meets Wednesday. Consensus also favors no changeIn much of Asia, central bank intervention decisions are influenced by the trade-weighted exchange rate and the economic cycleTherefore MAS’s forward-looking policy setting approach can influence perceptions of the most highly cyclical Asian currencies –- such as the won, Taiwan dollar, Malaysian ringgit and Thai bahtChile’s central bank is expected to keep its key rate at 0.50% on Thursday, and refrain from announcing new quantitative-easing measures, according to Bloomberg Economics. The peso was the best-performing emerging-market currency last quarter, according to data compiled by BloombergUganda will also decide on monetary policy on Thursday, and Sri Lanka on FridayEconomic DataMalaysia’s industrial output barely grew in August, according to data from the Department of StatisticsThe ringgit weakened for the first time in three days on MondayIndia’s consumer-price inflation accelerated more than estimated in September, possibly prompting monetary policy makers to keep interest rates on hold for longerIndustrial production fell 8% in August from last yearSeptember trade balance will be reported ThursdayThe rupee was little changed last week, making it Asia’s laggard after the central bank on Friday signaled more policy easing ahead and announced a slew of liquidity steps to support an economy. The Monetary Policy Committee retained the benchmark repurchase rate at 4%, as expected, while keeping its policy stance accommodative, implying it could ease againThe Philippines’ remittance growth numbers for August are scheduled to be released on Thursday. Consensus expects growth of roughly 5% year-over-yearThe peso’s 0.3% gain last week was the second least among emerging-Asian currenciesTurkey’s current account remained in deficit for a ninth month as the trade balance deteriorated and the coronavirus-related tourism slump deepened; it will publish industrial production data TuesdayThe lira is the worst performer in emerging markets this month, even after the central bank unexpectedly hiked its one-week repo rate by 200 basis points in September and authorities unwound a number of trading restrictions on the currency.Mounting geopolitical risks have weighed on the currency. Turkey plans to hold a four-day firing exercise around its Black Sea coast this week, which might include a test of its Russian-made S-400 missile-defense systemRussia conceded a three-day-old truce it brokered between Azerbaijan and Armenia isn’t holding yet, as the two warring sides traded accusations of responsibility for fresh clashes in the Nagorno-Karabakh region. Turkey has backed Azerbaijan in the conflictPoland presents its August current-account balance on Wednesday, followed on Thursday by the flash CPI reading for September, and by last month’s core CPI print on FridayRussia may report year-to-date budget balance; also September industrial production, producer prices on Thursday and FridaySouth African factory output contracted for a fifteenth month in August even as coronavirus-lockdown measures were eased allowing activity to resume in the sectorMining production will be released on Tuesday, followed by retail sales Wednesday and second-quarter non-farm payrolls ThursdayA reading of Argentina’s September inflation, scheduled for Wednesday, will probably show an annual decrease, according to economists surveyed by Bloomberg. The nation is also expected to release budget balance data this week. Bloomberg Economics recommends watching the central bank as it tries to stem the depletion of international reservesMexican industrial production data for August declined 9% from a year ago despite a small recovery from earlier in 2020The Mexican peso has outperformed all of its peers this month as investors bet that increased stimulus under a Biden presidency will help boost exports to the U.SIn Brazil, investors will watch August economic activity figures on Thursday for signs of a rebound in gross domestic product in the third quarter. The nation may also seek to stifle any debate over the government’s new social program and spending cap until after local elections in mid-NovemberThe real was the biggest gainer in emerging markets last weekA reading of Peru’s August economic activity gauge on Thursday will probably flag an even deeper contraction than a month earlier, according to economists surveyed by BloombergColombia is expected to post retail sales numbers on Thursday that may give money managers more insight into the nation’s consumer appetite amid the pandemic(Updates with India’s inflation and industrial production data.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
The Argentine peso led losses with the bank saying it would abandon its current "uniform daily devaluations and introduce greater volatility" as the gap between the official exchange rate and the rate quoted in the country's informal currency markets widened close to 93%. It also increased the important overnight repo rate to 24%, from the current 19%. "Even if increasing the repo rate is a move in the right direction, the size of the increase is probably too small given the size of the imbalance currently observed in the official FX market," they said, adding that raising the rate of volatility of the official FX rate will not encourage a higher supply of dollars but rather have the opposite effect.