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China Euphoria Spurs EM Rally Before Gains Are Trimmed

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imageStock Markets7 hours ago (Jul 10, 2020 04:18AM ET)
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(C) Reuters. China Euphoria Spurs Rally Before Gains Are Trimmed

(Bloomberg) — Emerging-market assets are heading for a second week of gains as a surge in Chinese stocks boosted risk appetite and overcame ongoing coronavirus jitters. The rally was trimmed toward the end of the week after China’s authorities warned about the dangers of a potential equity bubble. Sino-U.S. tensions also remained on the market’s radar with the U.S. putting sanctions on a politburo member.

The following is a roundup of emerging-market news and highlights for the week through July 10:

Highlights:

  • China’s equity market was in the spotlight after an almost unprecedented rally that helped push global stocks to a one-month high
    • The authorities acted to cool the speculative frenzy on Friday, snapping an eight-day surge that had fueled worries of a new equity bubble in the making
    • China’s National Council for Social Security Fund said it plans to sell a 2% stake in PICC Group. The fund, which oversees about 2.2 trillion yuan ($314 billion), said the sale was due to “regular divesting activities”
  • Some top advisers to President Donald Trump want the U.S. to undermine the Hong Kong dollar’s peg to the U.S. currency as the administration considers options to punish China for moves to chip away at the former British colony’s political freedoms, according to people familiar
    • The U.S. sanctioned a top member of China’s ruling Communist Party and three other officials over human rights abuses in Xinjiang, escalating the Trump administration’s tense rivalry with the country; China vowed countermeasures over the sanctions
    • Trump is preparing to issue a series of executive orders on a range of subjects, including China, manufacturing, immigration and prescription drug prices, his chief of staff said
    • The U.S. has imposed travel restrictions on Chinese officials who are “substantially involved” in restricting access to Tibet, Secretary of State Michael Pompeo said
    • Chinese companies including conglomerate HNA Group Co. and affiliates of a state-owned defense giant were among recipients of the billions of dollars in coronavirus-relief loans handed out by the U.S. government.
  • Brazil’s President Jair Bolsonaro, who has consistently belittled the threat posed by the coronavirus pandemic while his country has soared to the world’s second-most cases and deaths, tested positive for Covid-19
  • The virus is flaring again in parts of Asia, with Hong Kong and Tokyo reporting record spikes in new infections just days after Melbourne locked down again, reflecting the challenge of containing the pathogen
  • Malaysia’s central bank cut its benchmark interest rate to a record low and warned of lingering downside risks to a economy reopening after months of lockdown
  • Turkey banned six foreign banks from betting against the nation’s stocks in a move that appeared to contradict recent steps toward easing such restrictions
  • The Bank of Israel said it plans to purchase corporate debt for the first time as a new surge in Covid-19 cases stalks the economy
  • Nigeria’s latest devaluation of the official naira rate — one of the West African nation’s multiple exchange rates — has left traders perplexed
  • Investors sold almost $1 billion of emerging-market stock ETFs last week, outweighing a smaller inflow to bond funds

Asia:

  • China’s factory deflation eased in June as the economic recovery continued, while consumer inflation ticked up
    • Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL) and Twitter — all of which are blocked in the mainland — are now headed toward a showdown with China that could end up making Hong Kong feel more like Beijing
    • The People’s Bank of China set the yuan’s reference rate at 6.9943 per dollar on Friday, putting the fixing stronger than the 7 level for first time since March
    • Demand for Hong Kong dollars is intensifying in the face of an increasingly politicized environment, with mainland buying helping to buoy both the pegged currency and local stock market
    • Beijing police arrested an outspoken critic of Chinese President Xi Jinping as his administration took steps to crack down on potential threats to the Communist Party stemming from the economic fallout of the pandemic
    • Hong Kong asserted sweeping new police powers as the territory revealed more about how it would implement a national security law handed down last week by Chinese lawmakers
    • ByteDance Ltd.’s TikTok will pull its viral video app from Hong Kong’s mobile stores in coming days, becoming the first internet service to withdraw after Beijing enacted sweeping powers to crack down on national security threats
    • China will introduce direct trading between yuan and more other currencies, according to an official at the central bank’s macroprudential policy bureau
    • China said the U.K. will face “consequences” if it chooses to be a “hostile partner” after it emerged Prime Minister Boris Johnson is preparing to begin phasing out the use of Huawei Technologies Co. equipment in the U.K.’s 5G telecommunications networks as soon as this year
  • South Korea will increase the size of its “New Deal” plan by around a third to more than 100 trillion won ($83 billion) over the next five years, according to local media. The project, proposed by President Moon Jae-in, is aimed at funding post-pandemic growth engines with a focus on tech and green industries
    • Seoul Mayor Park Won-soon, viewed as a potential candidate for the 2022 presidential election, has been found dead, police said, adding that he was the subject of an undisclosed investigation
    • The sister of North Korean leader Kim Jong Un dismissed the chances of a meeting with the U.S. this year, saying it would be “meaningless,” but conveyed her brother’s “best wishes” to President Trump
  • India is considering a plan to raise as much as 200 billion rupees ($2.7 billion) by selling stake in the world’s largest coal producer and a bank to fund a stimulus program, officials with knowledge of the matter said

    • Indian and Chinese officials say soldiers from both sides have begun falling back along their contested Himalayan border that last month saw the worst flare up of violence in four decades
    • Signs are emerging that India’s $277 billion stimulus is helping reopen the bond market to smaller borrowers
  • Indonesia’s central bank agreed to buy billions of dollars of sovereign bonds directly from the government to help finance the fiscal response to the coronavirus
    • Traders cheered Bank Indonesia’s decision to buy at least $40 billion of bonds from the government, taking pressure off markets
    • A panel of Indonesian lawmakers is set to scrutinize the government’s plan to sell billions of dollars of bonds to the central bank to finance a widening fiscal deficit, which S&P Global Ratings said posed no immediate threat to the nation’s sovereign rating
    • Bureaucratic red-tape is preventing almost $50 billion in fiscal support from being disbursed to virus-hit businesses and health care workers in Indonesia, risking a deeper economic slump amid a surge in cases
    • The country reported a record jump in daily coronavirus infections as a military academy and an industrial area emerged as the nation’s newest clusters
  • Inflation in the Philippines posted a surprise uptick in June, halting four months of deceleration as the economy reopened and consumers resumed spending
    • The nation is lifting the ban on non-essential travel and allow hair treatment in salons even as infections rose by a quarter in the past week
    • Finance Secretary Carlos Dominguez said while government is borrowing more than usual this year to fund coronavirus-related measures, it needs to be careful about spending above its means
    • The Philippine trade deficit climbed to $1.865 billion in May, exceeding the $500 million median estimate of economists and four times that of April
  • Taiwan’s exports fell for a fourth month as officials warned global demand may struggle to recover in the face of a resurgent worldwide coronavirus outbreak and U.S.-China tensions
  • Sri Lanka’s central bank lowered borrowing costs for a fifth time this year to support the economy amid the coronavirus crisis

EMEA:

  • Polish President Andrzej Duda is tilting further to the right in pursuit of ultra-conservative voters he needs to win a runoff election on July 12
  • Romania may return to foreign debt markets in 2020, even after raising a record $10 billion through international bond sales this year to fund a ballooning budget deficit
  • As governments across the globe increase debt loads to fund record stimulus programs, Russia is preparing to strip back borrowing after an increase this year
    • The U.S. is unlikely to slap sanctions on the Russian government’s ruble bond market despite an escalation in tensions, according to the biggest American trade group in Moscow
  • Share-trading accounts have blossomed globally during Covid-19 lockdowns as more and more people try to make money from stocks. But in few places has the take-up been as dramatic as in Turkey, where dealing in benchmark Borsa Istanbul 100 Index shares has hit record levels

    • The Turkish government’s temporary ban on layoffs, coupled with allowances for workers, are helping mask the extent of the distress in an economy tripped up by the coronavirus
    • Turkish media are speculating that President Recep Tayyip Erdogan may shake up his cabinet after he marks the end of his second year in office
  • Ukrainian inflation accelerated 2.4% from a year earlier in June, its first increase in almost a year but remains well below the central bank’s target
  • Serbia’s health authorities may hold off on reinstating a virus lockdown in Belgrade this weekend after plans for a 59-hour curfew triggered violent street protests, President Aleksandar Vucic said
  • Egypt’s net international reserves climbed for the first time since February as a resumption of capital inflows eased the strain of the coronavirus pandemic
    • The nation’s food prices fell for a second month as the coronavirus pandemic stunted purchasing power and hit employment
  • Business conditions in Dubai showed signs of picking up in June as the city reopened after a lockdown to contain the spread of the coronavirus

    • The emirate expects an “aggressive” bounce back in tourism by the year-end after it allowed holiday-makers to resume flying into the emirate
  • The number of foreigners employed by Saudi Arabia’s private businesses rose in the first quarter, a reversal unlikely to last as economic damage from the global pandemic and an oil price rout push companies to reduce staff
  • Bond investors are losing their appetite for South African debt after the government increased issuance a second time this year to help plug a budget deficit
    • For the first time ever, South Africa is paying more to borrow in its local currency than Nigeria, rated four steps lower at Moody’s Investors Service
    • South Africa’s government debt could become unsustainable and the country could default if lawmakers heed a call by a group of economists to reject the supplementary budget, according to a central bank official
  • Ghana’s budget deficit for 2020 will swell to more than double the legal limit because of the impact of the coronavirus, undoing years of fiscal discipline that was supposed to mark the end of persistent financial bailouts
  • Ivory Coast Prime Minister Amadou Gon Coulibaly, who had been hand-picked by President Alassane Ouattara to succeed him after elections later this year, has died. He was 61
  • The Mauritian central bank held its benchmark rate at a record low, saying previous cuts are still working through the economy
  • Uganda’s economy will probably expand at the slowest pace in more than three decades this year due to the fallout from the coronavirus, a locust invasion and floods, the World Bank said
  • One of Zimbabwe’s biggest creditors rejected a government request for debt relief until it improves its human rights record and pays arrears on outstanding debt

Latin America:

  • Brazil’s President Bolsonaro is insisting his approach to the pandemic was correct all along, while some of the country’s biggest cities moved forward with reopening the economy
    • Brazil’s senate approved a bill that reduces the impact of the real’s volatility on financial institutions’ investments
    • Retail sales rose more than economists forecast as stores started to reopen in May
    • Central bank chief Roberto Campos Neto said the impact of growth on inflation will define whether there’s room for further easing
    • Latam Airlines Group sought bankruptcy protection for its Brazil unit in New York, following a similar request in Santiago
  • Mexico’s inflation accelerated in June, bolstering views that the central bank’s rate cut cycle is closer to an end, even as some officials see room for more easing
    • Mexican President Andres Manuel Lopez Obrador’s first visit to the White House sealed an unlikely partnership with Donald Trump to launch a new phase in the relations between the neighbors amid criticism in the Latin American country
    • Grupo Famsa said it will miss interest payments on some bonds and Petroleos Mexicanos is asking some of its contractors if they can wait until next year to be paid money that is owed to them now
  • Peru’s central bank held its benchmark lending rate at a record low after a virus-induced lockdown sent the economy into a tailspin
  • Chilean local assets fell after the lower house approved proposals to let workers draw down their retirement savings, potentially forcing pension funds to unload some of their holdings

    • Consumer prices declined for a second month in June as policy makers tightened social restrictions
  • Ecuador reached a preliminary agreement with some of its largest bondholders to restructure $17.4 billion in outstanding debt

    • Nation’s vice president and foreign minister resigned
  • Argentina’s Economy Minister Martin Guzman said bondholders shouldn’t expect any more improvements to the debt restructuring proposal after the Ad Hoc and Exchange bondholder groups said they would not accept the latest offer
    • Mendoza’s bondholders represented by the Ad Hoc Group rejected the province’s amended debt proposal
    • Province of Rio Negro slid into default after missing a coupon payment, triggering a downgrade by S&P Global Ratings
    • Salta province will use a grace period for an interest payment due July 7 on dollar-denominated foreign law bonds maturing in 2024
  • Bolivian President Jeanine Anez says she tested positive for the coronavirus
  • Diosdado Cabello, one of the most powerful people in the Venezuelan government, has tested positive for Covid-19
  • El Salvador sold dollar-denominated bonds paying the highest coupon in emerging markets this year.

China Euphoria Spurs EM Rally Before Gains Are Trimmed

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