Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Emerging Markets: What Changed

By Marc ChandlerMarket OverviewAug 05, 2018 12:27AM ET
www.investing.com/analysis/emerging-markets-what-changed-200336399
Emerging Markets: What Changed
By Marc Chandler   |  Aug 05, 2018 12:27AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

(from my colleague Dr. Win Thin)

  • PBOC reinstated a 20% reserve ratio for financial institutions conducting FX forward transactions.
  • China said it plans to slap tariffs at levels of 25%, 20%, 10%, and 5% on about $60 bln of US imports.
  • Reserve Bank of India hiked rates 25 bp to 6.5%, as expected.
  • Czech central bank adjusted many of its forecasts after hiking rates 25 bp to 1.25%.
  • A bipartisan group of US senators introduced legislation to impose new sanctions on Russia for continued interference in US elections.
  • The US imposed sanctions on two Turkish officials over the continued detention of American pastor Andrew Brunson.
  • Brazil COPOM tilted more dovish as it kept rates steady at 6.5%.
  • Banco de Mexico tilted more dovish as it kept rates steady at 7.75%.

In the EM equity space as measured by MSCI, Qatar(+6.7%), Egypt (+5.5%), and Hungary (+2.4%) have outperformed this week, while China (-4.9%), Hong Kong (-3.2%), and Singapore (-2.2%) have underperformed. To put this in better context, MSCI EM fell -1.6% this week while MSCI DM fell -0.1%.

In the EM local currency bond space, the Philippines (10-year yield -20 bp), China (-5 bp), and Poland (-5 bp) have outperformed this week, while Turkey (10-year yield +101 bp), Argentina (+28 bp), and Brazil (+27 bp) have underperformed. To put this in better context, the 10-Year UST yield fell 2 bp to 2.95%.

In the EM FX space, PKR (+4.8% vs. USD), PLN (+0.8% vs. EUR), and HUF (+0.7% vs. EUR) have outperformed this week, while TRY (-4.5% vs. USD), ILS (-1.2% vs. USD), and ZAR (-1.0% vs. USD) have underperformed. To put this in better context, MSCI EM FX fell -0.2% this week.

People’s Bank of China reinstated a 20% reserve ratio for financial institutions conducting FX forward transactions for clients. By way of explanation, this reserve requirement was first introduced in 2015 to help stabilize the yuan after the surprise devaluation. It was removed last September in order to slow CNY appreciation. By putting it back on, the PBOC is signaling that it wants to slow CNY depreciation. This supports our view that China is not weaponizing CNY with regards to trade tensions.

China said it plans to slap tariffs at levels of 25%, 20%, 10%, and 5% on about $60 bln of US imports. The Finance Ministry said it will implement these tariffs as soon as the US enacts its tariffs on Chinese imports. Commerce Secretary Wilbur Ross warned that there’s more pain ahead unless China changes its economic system. With neither side showing signs of backing down, trade tensions are likely to remain high.

Reserve Bank of India hiked rates 25 bp to 6.5%, as expected. There was one dissent in favor of steady rates. A neutral stance was maintained, but that same stance didn’t stop the RBI from hiking today. CPI rose 5.0% y/y in June, the highest since January and in the top half of the 2-6% target range. WPI rose 5.77% y/y in June, the highest since December 2013 and support the case for higher CPI inflation ahead.

Czech central bank adjusted its forecasts after hiking rates 25 bp to 1.25%. Most importantly, the bank raised its 2019 average PRIBOR forecast only marginally from 1.6% to 1.7%. This implies only two more hikes between now and end-2019, which the market took as dovish. The bank also cut its 2018 growth forecast from 3.9% to 3.2%.

A bipartisan group of US senators introduced legislation to impose new sanctions on Russia for continued interference in US elections. These sanctions are much stronger than existing ones and include penalties on trading Russian sovereign debt and investing in energy projects. Republican Senator Lindsey Graham of South Carolina said the goal is to "impose crushing sanctions and other measures against Putin’s Russia until he ceases and desists meddling in the US electoral process.”

The US imposed sanctions on two Turkish officials over the continued detention of American pastor Andrew Brunson. The sanctions target Minister of Justice Abdulhamit Gul and Minister of Interior Suleyman Soylu, both of whom “played leading roles in the organizations responsible for the arrest and detention of Pastor Andrew Brunson,” according to the US Treasury statement. Turkey said it would retaliate.

Brazil COPOM tilted more dovish as it kept rates steady at 6.5%. The bank said it views the recent rise in inflation as temporary. We disagree, as pipeline price pressures are strong. Next policy meetings will be held September 19, October 31, and December 12. If inflation continues to trend higher and pressure on the real picks up as we expect, COPOM will have to consider a hike in September.

Banco de Mexico tilted more dovish as it kept rates steady at 7.75%. Like Brazil, Mexico also said that it views the recent rise in inflation as temporary. Like Brazil, PPI inflation has spiked up, rising 9.2% y/y in June. Next policy meetings will be held October 4, November 15, and December 20. If inflation continues to trend higher and pressure on the peso picks up as we expect, Banxico will have to consider a hike in Q4.

Emerging Markets: What Changed
 

Related Articles

Emerging Markets: What Changed

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email