Trade angst revival rattles emerging-market optimists

Emerging-market stocks retreated as the arrest of Huawei’s chief financial officer and mixed messages from the Trump administration rekindled concern over a US-China trade war. Commodity currencies gained amid a rally in crude.


The arrest of Huawei Technologies Company's CFO provoked outrage from Beijing at a critical juncture in trade talks with the US and was blamed in part for a sell-off in global equities. Wanzhou Meng was charged with conspiracy to defraud banks; she faces extradition to US over potential sanctions violations. Her arrest triggered debate among Chinese officials over retaliation.

White House adviser Peter Navarro said tariffs on Chinese goods would rise if there’s no trade deal after a 90-day truce expires. Meanwhile, Donald Trump’s top economic adviser Larry Kudlow separately characterised the talks as positive.

The US trade deficit widened to a 10-year high in October. The Chinese yuan was among the best performers; Trump and Xi Jinping agreed to postpone a planned tariff hike on Chinese goods for three months in return for greater purchases of US exports; the US agreed to refrain from raising tariffs on $200bn of Chinese goods from 10% to 25% on January 1.

China said the trade meeting with the US was "very successful" and that it’s "confident" of implementing the results agreed upon at the talks, according to the Ministry of Commerce Beijing will start to quickly implement specific items where there’s consensus with the US and will push forward on trade negotiations within the 90-day "timetable and road map," the ministry said.

Treasury Secretary Steven Mnuchin said China has agreed to eliminate tariffs on imported automobiles but declined to give details after Trump jolted car stocks by announcing a deal had been reached.

OPEC agreed on a larger-than-expected crude output cut with allies after two days of fractious negotiations in Vienna, spurring a surge in crude.

Federal Reserve Chairman Jerome Powell said the US labour market is "very strong" by many measures. US jobs and wages rose by less than forecast in November while the unemployment rate held at the lowest in almost five decades, indicating some moderation in a healthy labour market


China’s former central bank governor Zhou Xiaochuan said he’s optimistic on the US trade truce. India’s rupee was Asia’s worst performer, falling with the benchmark Sensex Index of stocks; the central bank struck a less hawkish tone, signaling it was open to adjusting monetary policy if upside risks to inflation don’t materialise; RBI kept its benchmark repurchase rate unchanged at 6.5%.

The central bank will also cut the statutory liquidity ratio for banks by 25 basis points each quarter to bring it down to 18%, a move that will have implications for government bonds. Indonesia’s rupiah slid despite the central bank’s presence in the market; Bank Indonesia intervened in the rupiah spot and DNDF markets to smooth out volatility, said Nanang Hendarsah, executive director for monetary management.

Indonesia is targeting 14% to 17% of its gross borrowing from overseas next year, the finance ministry said Thailand’s inflation rate eased to 0.94% on-year in November, falling below the central bank’s target range for the first time since March.

Philippine inflation rate fell to 6% in November from 6.7% the month before. Bangko Sentral ng Pilipinas Governor Nestor Espenilla said "monetary policy will need to stay vigilant to keep inflation under control amid expected strong economic growth" even as he described easing price pressures in November as very encouraging.

The US-China trade war may last at least one to two years despite recent moves toward a possible detente, Taiwan’s central bank governor said.


Russian inflation accelerated for a fifth month in November, creeping closer to the central bank’s target and leaving open the possibility of an interest-rate hike. Russia has no plans to abandon borrowing in dollars and the nation will issue debt in the US currency again next year after its first sale in euros since 2013, Finance Ministry debt chief Konstantin Vyshkovsky said.

Poland left borrowing costs at a record low after a hefty plunge in inflation calmed talk of an interest-rate increase. Consumer-price growth slid more than estimated last month and, with the economy still ticking along nicely, the central bank kept its benchmark rate at 1.5%, as predicted in a Bloomberg survey.

Turkey’s lira was among the worst emerging-market performers; inflation slowed more-than-expected to 21.6% in November from a 15-year high in October. The central bank will change its monetary policy stance if and when it sees moves in foreign-exchange levels that make a "permanent impact on price stability," it said in its Monetary and Exchange Rate Policy for 2019 document.

South Africa emerged from its first recession in almost a decade in the third quarter. Gross domestic product rose by an annualised 2.2% in the three months through September from a revised 0.4% contraction in the prior quarter. The nation’s current-account deficit widened in the third quarter as the trade surplus narrowed. The current-account shortfall was 3.5% of gross domestic product, compared with a revised 3.4% deficit in the previous three months.

Saudi Arabia’s king invited Qatar’s ruler to attend a regional summit in Riyadh in December in a sign of a potential thaw between the nations. Qatar will withdraw from OPEC as of January 1 in what Minister of State for Energy Affairs Saad Sherida Al-Kaabi called a "technical" move that will allow the country to focus on natural gas production.

Latin America

Brazilian President-Elect Jair Bolsonaro said the pension overhaul could be pursued in stages, so that it’s "less difficult to approve" S&P Global Ratings said it sees big fiscal challenges for Brazil with the new Congress and urged the next government to quickly pass pension-reform legislation.

Industrial production rose less than almost all economists expected in October, showing it was slow to gain traction ahead of elections. Consumer prices fell 0.21% in November, three times as much as economists expected, fueling bets that the central bank may hold interest rates at a record low throughout 2019.

The real led regional currency declines, closing Friday’s session on a four-day losing streak. Mexico’s new government proposed repurchasing some of the bonds sold to fund Mexico City airport, a $13bn partially built project that President Andres Manuel Lopez Obrador decided to scrap in October, triggering a sell-off in the country’s assets. Investors in the airport project want a lot more from the government before they agree to its partial buyback offer.

Inflation slowed less than expected in November as the central bank raised borrowing costs to head off price pressures from a weaker currency. Argentina’s central bank removed a 60% floor for its benchmark interest rate after it met inflation goals agreed to with the International Monetary Fund in exchange for a $56bn bailout. As of next year, authorities will also slow the pace of adjustment of a currency band that allows the peso to trade between about 36 pesos to 46 pesos per dollar.

Chile’s central bank left its benchmark interest rate unchanged as falling oil prices eased pressure on inflation and economic growth remained uneven. The monetary authority also reduced its inflation forecasts for this year and the next, while toning down its economic growth estimate for this year.

Inflation unexpectedly slowed in November amid lower crude prices Colombian consumer prices rose 0.12% in November.  S&P said the outcome of fiscal reform will be key for Colombia in 2019.

The peso trounced emerging-market peers in its biggest weekly gain since April.

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