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Photo: AP
Photo: AP

Return of US-China tensions put brakes on emerging markets rally

Intensifying US-China tensions outweighed positive developments on the vaccine front and optimism of a US stimulus deal

A rally in emerging-market currencies paused last week, even as the dollar held close to its lowest level in two years, as intensifying U.S.-China tensions outweighed positive developments on the vaccine front and optimism of a U.S. stimulus deal. Developing-nation stocks rose for a third week amid signs of recovery in U.S. manufacturing data. Argentina and Ecuador reached agreements with their top holders to restructure billions of dollars in overseas debt.

The following is a roundup of emerging-market news and highlights for the week through Aug. 7:


• Senior U.S. and Chinese officials are planning to assess the nations’ trade agreement this month against a backdrop of rising tensions between the two countries, according to people briefed on the matter

o President Donald Trump signed a pair of executive orders prohibiting U.S. residents from doing any business with TikTok, WeChat or the apps’ Chinese owners

o China’s state-run media branded U.S. demands for the sale of TikTok’s American operations to Microsoft Corp. as “theft" and suggested Beijing may block the transaction

o A high-powered group of U.S. regulators said stock exchanges should set new rules that could trigger the delisting of Chinese companies, following mounting concerns that investors are being exposed to frauds

• Negotiations over a virus relief package ended Thursday night with the White House and Democrats making no headway on resolving their biggest difference, bringing the talks to the brink of collapse

o Trump said he may take executive action to impose a moratorium on evictions and to enact a payroll tax holiday

o Federal Reserve officials warned that another round of fiscal relief would be critical for the U.S. economy

• Johnson & Johnson will supply 100 million doses of its experimental virus vaccine to the U.S., while Moderna said it has received $400 million of deposits for its potential shot

• Factory managers in Asia broadly saw a modest pickup in activity in July as China’s demand kept up its momentum. Taiwan, at 50.6 -- its best reading since January -- was a rare economy that rose above 50, the dividing line between contraction and expansion

• China’s exports rose in July as economic activity in the rest of the world started resuming, while an unexpected contraction in imports signaled the ongoing fragility of the domestic recovery

• Argentina struck a deal with its top creditors to restructure $65 billion of debt after months of negotiations, setting the stage for the nation to emerge from its third default since the turn of the century

• Turkey’s lira tumbled to its lowest level against the dollar as interventions by state banks failed to keep a lid on the currency’s depreciation; the cost of borrowing Turkish liras overnight in the offshore market surged to the highest level since March 2019 earlier in the week

o Several international banks failed to close their lira positions with Turkish counterparts on Tuesday, an outcome of policies that are keeping a lid on local-currency liquidity offshore

o Turkish authorities are working on a plan to exempt global investment banks from some restrictions on swapping foreign exchange for liras after easing access for international development banks, according to people with direct knowledge of the matter

o Central bank stopped funding local lenders from its one-week repurchase rate, forcing the banks to borrow from a more expensive overnight window

• A massive explosion at Lebanon’s main port rocked Beirut, overwhelming hospitals dealing with the injured and dying. The blast was so large it blew out windows across the capital and was even heard from Cyprus

• Ecuador has won the support of enough bondholders to restructure $17.4 billion in international debt, almost a third of its total foreign obligations


• China’s factory activity grew at a faster pace in July than at any point since January 2011, as the economic recovery gained momentum, a private gauge showed

o China’s banks need about $500 billion in fresh liquidity this month to roll over existing debt and buy government bonds, complicating the People’s Bank of China’s efforts to exit crisis measures

o Official reserve assets of China rose $54.9b, or 1.7%, from the previous month to $3.3t in July

o Small businesses in China are being told by their foreign banks that loan extensions mandated by the government no longer apply to them as the nation dials back one of the relief measures unleashed after the coronavirus lockdown

o China signaled it did not want relations with the U.S. to worsen and urged against the creation of a “new Cold War"

o The U.S. government issued an alert that a type of malware seen frequently by security researchers in the last decade is tied to the Chinese government

o Secretary of State Michael Pompeo urged American companies to bar Chinese applications from their app stores

• South Korea’s export slump slowed in July, aided by the economic recovery in China and resilient demand for semiconductors

o Consumer prices advanced in July, led by fresh foods, adding to signs that the economic downturn from the coronavirus pandemic is bottoming out, though questions linger about the strength of recovery

o Bank of Korea should maintain its low interest rate policy until there’s enough recovery momentum seen in South Korean economy, one board member said, according to minutes of July 16 meeting

• India’s central bank kept interest rates unchanged on Thursday, opting for inflation to cool before taking further action to boost a fragile economy

o Of all the countries in the world, the disconnect between rallying global stocks and deteriorating data is probably the most pronounced in India

o The monetary authority will allow banks to restructure some of their loans and plans to reassess how much capital they need to set aside for priority sectors

• Indonesia’s economy contracted for the first time since the aftermath of the Asian Financial Crisis more than two decades ago, as movement restrictions to contain the coronavirus outbreak took a toll on Southeast Asia’s largest economy

o Consumer prices in July rose 1.54% from a year earlier, the lowest pace since May 2000 at 1.2%

o State spending will total about 1,476 trillion rupiah ($101 billion) in the six months through December, Finance Minister Sri Mulyani Indrawati said

o The government kicked off an unconventional debt financing program with its first direct sale of sovereign bonds to the central bank to fund billions of dollars in fiscal stimulus

o Reserves rose to a record $135.1 billion in July

• The Bank of Thailand held its benchmark interest rate steady at an all-time low to support an economy that’s taking the biggest knock in Asia related to the coronavirus pandemic

o Thailand has a new finance minister to help shape the government’s response to the sharp recession induced by the virus pandemic, one of a number of changes in a wider Cabinet reshuffle

• The Philippine economy suffered its deepest contraction on record in the second quarter and revised down its forecast for the year

o The capital returned to a stricter lockdown from Tuesday as coronavirus cases surged; President Rodrigo Duterte is seeking to boost the budget for next year by almost 10% to sustain the nation’s efforts to fight the pandemic

o Despite imposing the longest, strictest lockdown in Southeast Asia, coronavirus cases in the Philippines have surged to almost 120,000, eclipsing Indonesia to become the region’s biggest outbreak

o Overseas Filipinos sent home $2.11 billion in May, down 19.3% from a year ago, steepest drop since Jan. 2001

o Inflation hit a six-month high in July; the Philippine government increased its ceiling for the budget deficit until 2022

• Malaysia’s unemployment rate eased to 4.9% in June, from a record high 5.3% in May

o The High Court on Friday struck off a lawsuit filed by former Prime Minister Mahathir Mohamad and five others against Prime Minister Muhyiddin Yassin over the termination of their membership in ruling party Parti Pribumi Bersatu Malaysia or Bersatu

• Health and Human Services Secretary Alex Azar will lead a delegation to Taiwan in the highest-level visit by a U.S. cabinet official since Washington cut ties with Taipei more than 40 years ago. The announcement drew a rebuke from China

• The brothers ruling Sri Lanka scored a landslide victory in parliamentary elections that could help President Gotabaya Rajapaksa push through contentious constitutional changes to restore sweeping executive powers to his office

• Taiwan’s exports unexpectedly rose for the first time since February, spurred by a surge in U.S. and Chinese demand for technology products


• Russian telecommunications investor Ivan Tavrin raised $250 million in the U.S. to fund acquisitions, taking advantage of investor appetite for so called blank-check initial public offerings

o Industrial production in Russia may contract 4%-5% this year

o Russia has begun the process of pulling out of its agreement with Cyprus on avoiding double taxation

• Romania cut borrowing costs to a record as the fallout from the coronavirus continues to batter the economy and new infections remain high

• Turkish inflation surprised with a bigger slowdown than anticipated, heading off the prospect of interest rates rising any time soon

o A leading association of Turkish doctors said that nearly 1,000 people are being infected with the coronavirus every day in Ankara alone, questioning the accuracy of government figures

o A surge in coronavirus cases has prompted the Turkish government to debate new restrictions, including changes to the school calendar

• As emergency services assess the toll from Tuesday’s deadly explosion in Beirut, one immediate consequence is becoming clear to analysts: it will ratchet up pressure on Prime Minister Hassan Diab to make meaningful progress in talks with international lenders and investors

o The huge explosion in Lebanon’s capital of Beirut tore through major grain silos, stoking fears of shortages in a nation that imports nearly all its food and is already reeling from economic crisis

o The volatile chemical suspected of causing the deadly explosion that flattened Lebanon’s main port had been lying in storage there for six years despite warnings from customs officials about its hazards

• Foreign investors continue to desert South Africa’s bond market in July, with their share of government debt falling to the lowest level in more than eight years

o President Cyril Ramaphosa’s tenuous control of the ruling party was laid bare at the weekend when its leaders rebuffed his proposal to investigate allegedly tainted state contracts for health equipment

o South African business leaders are growing increasingly concerned that the government doesn’t have the will or capacity to overcome the economic devastation wrought by the coronavirus pandemic

o Ramaphosa appointed a government committee to investigate alleged corruption associated with the country’s response to the coronavirus pandemic

• Poland will introduce new containment measures against Covid-19 in some of the most affected areas in the country of 38 million people after fresh infections set records in the past weeks

• With countries around the world pledging more monetary assistance for their virus-stricken economies, a record government spending spree and resilient inflation may allow the Czech central bank to raise borrowing costs as early as next year

• The United Arab Emirates will deliver a three-stage “flexible package" of measures to bolster the economy, including steps to support the labor market and encourage investment

• Another month of improving business conditions across the Arab world’s three biggest economies isn’t translating into job gains just yet; Employment continued to fall in Saudi Arabia, the United Arab Emirates and Egypt despite a stronger pickup in non-oil private sector activity in July, according to Purchasing Managers’ Index surveys compiled by IHS Markit

• Ten Kuwaiti lawmakers submitted a motion of no-confidence in Finance Minister Barak Al-Sheetan after accusing him of pursuing economic reforms that will leave ordinary citizens worse off

• After months of quiet, Israel is facing off against Hezbollah forces across its border, in a showdown exacerbating the economic and political strife already convulsing both sides of the frontier

• There is no recovery in sight yet for Africa’s worst-performing stock market as investors look to bank earnings this month to assess how hard the coronavirus pandemic hit Kenyan lenders

• Ethiopia may be running out of time to negotiate an agreement on the filling and operation of a mega-dam on the Nile River thats pitted the Horn of Africa nation against Egypt and Sudan, the U.S. State Department said

Latin America:

• Argentina aims to reach a deal with the International Monetary Fund over a new financing program by the end of March after closing a deal with top bondholders, according to a person with direct knowledge of the matter

o Province of Rio Negro is in talks with creditors and Entre Rios hired HSBC Holdings Plc as an adviser to restructure its debt; Mendoza extended a deadline for creditors to accept a debt restructuring offer

o President Alberto Fernandez said he still wants a state-run company to have a sizable share of Argentina’s crop trading

• Ecuador is aiming to secure additional financing by the end of August to help plug its fiscal gap after wrapping up a deal to restructure $17.4 billion of debt, according to Finance Minister Richard Martinez

o Martinez said the country reached an agreement with China to reschedule debt payments

• Brazil’s central bank said it may consider another small cut to its key interest rate to boost an economy ravaged by the coronavirus, depending on prospects for public finances and inflation

o Economic team is said to be considering extending emergency payments to informal workers past September, when they were due to expire, and plans to allow early withdrawals from some pension funds

o Economy Minister Paulo Guedes asked lawmakers to approve the first part of a proposed overhaul of the tax system by the end of the year

o Brazil’s development bank will reap about $1.56 billion from its latest asset sale, picking up an agenda to reduce the size of the government

o Brazil’s Senate approved a proposal that limits interest rates banks are allowed to charge their clients during the pandemic

o Brazil to begin production of coronavirus vaccine in December

o Industrial output rose more than forecast in June from the month before and inflation accelerated in July

• President Andres Manuel Lopez Obrador said Mexico may need to change the rules governing the country’s energy industry and reverse the opening to private companies to save state oil giant Petroleos Mexicanos, according to a memorandum seen by Bloomberg News

o Mexico’s remittances beat estimates for a fourth consecutive month in June despite the decline in U.S. activity, and inflation accelerated in July

o Central bank deputy governor Gerardo Esquivel said there may be more than one interest rate cut in the pipeline for Mexico this year

• Peru’s President Martin Vizcarra said he’ll pick his second cabinet in less than a month after unexpectedly losing a congressional vote of confidence

o Vizcarra is said to retain Finance Minister Maria Antonieta Alva after the reshuffle and Defense Minister Walter Martos will take over as cabinet chief

• Chile’s Congress approved a constitutional reform that allows the central bank to buy debt instruments issued by the state in the secondary market

o Economic activity fell less than expected in June as mining output increased despite lock-downs across many parts of the country

• Alvaro Uribe, the most powerful leader in Colombia’s recent history, was placed under house arrest while he’s investigated over an alleged plot to bribe jailed mobsters

• Uruguay’s central bank will resume using interest rates as its main monetary policy tool after largely failing to control inflation by targeting changes in money supply

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