Emerging-Market Week in Review: Yellen, Trump Ignite Selloff

  • Fed rate view, Trump tax cuts weigh on emerging-market assets
  • Zloty and rand hard hit amid domestic political concerns

Emerging-market currencies posted their biggest weekly loss since November as the dollar soared on U.S. President Donald Trump’s tax reform plan and hawkish comments from Federal Reserve Chair Janet Yellen that fueled expectation for a December rate hike. Developing-market equities had their first monthly decline this year.

Highlights for the week ended Sept. 29:

  • Yellen said that while uncertainty is high around the forces keeping inflation low, the Fed’s most likely strategy is to continue raising borrowing costs
    • Trump and Republican leaders announced a long-awaited tax plan
  • U.S. and North Korea’s war of words escalated, with North Korean Foreign Minister Ri Yong Ho saying Trump’s recent comments amount to a declaration of war
    • U.S. has gamed out four or five different scenarios for how the crisis with North Korea will be resolved, and “some are uglier than others,” National Security Adviser H.R. McMaster said
  • Saudi Arabia was in market to sell dollar bonds, its second placement this year
  • Iraqi Kurds voted overwhelmingly in favor of independence
    • Iraq said Turkey agreed to deal exclusively with its central government over exports of Kurdish crude oil
  • Both the Bank of Thailand and the Bank of Mexico left their policy rate unchanged, in line with market expectations
  • Colombia’s central bank held its overnight lending rate at 5.25% as expected.

Asia:

  • Won rounded up fourth straight week of losses and touched the weakest level since July 11 amid growing tension on the Korean peninsula; Trump said the U.S. is prepared to use “devastating” military force against North Korea
    • North Korea “highly likely” to launch added military provocations, Yonhap News reported, citing South Korea’s Foreign Minister Kang Kyung-wha
    • China ordered North Korean companies active in the country to shut down as it seeks to implement United Nations’ sanctions against the hermetic regime
  • Baht reached a two-month low; Thailand’s former Prime Minister Yingluck Shinawatra sentenced to five years jail, though she is not in the country, according to court ruling
  • Taiwan dollar completed its first monthly drop in three after foreign investors offloaded the island’s equities; they sold net $1.9 billion this month through Friday, the biggest net outflow among Asia’s major emerging economies where data is available, according to data compiled by Bloomberg
  • China’s yuan led declines in the regional currencies ahead of a week-long holiday

EMEA:

  • Nigeria plans to sell as much as $5.5 billion of Eurobonds in the next three months, according to the Debt Management Office
  • Saudi Arabia plans to unveil regulations to make share listings easier and encourage mergers and acquisitions among publicly traded companies in the Middle East’s biggest bourse
  • Polish zloty was the fourth-worst performer among the world’s 24 major emerging currencies this week as investors priced in the risk of a continued stand-off between Poland and the European Union over the country’s plans for a judicial overhaul
  • Hungary announced plans to sell bonds in euros, its first since 2014, and buy back as much as $1.2 billion of existing debt
  • Turkish lira reached the weakest level since July 12; Russian President Vladimir Putin and Turkish counterpart Recep Tayyip Erdogan agreed to take coordinated steps to set up and monitor a combat-free zone in Syria

Latin America:

  • Brazil’s Ibovespa index drops 1.3%, the biggest weekly plunge in almost 4 months
    • Supreme Court suspends Senator Aecio Neves from office on corruption charges, a move seen by investors as a political hit on President Michel Temer since Neves was one of his allies in Congress amid government’s effort to block second graft charge against Temer
  • Peruvian sol touches three-month low as central bank President Julio Velarde affirmed country saw a “supply shock” and he expects September and October CPI to be negative; higher inflation prevented Central Bank to cut rates quicker, he said
  • Mexican peso leads losses among 24 emerging-market currencies tracked by Bloomberg, as investors exited long positions that became increasingly crowded. Peso losses accelerated after the currency breached a key support level at 18.00, which coincided with its 100-day moving average.

Upcoming data:

Monday-Friday, Oct. 2-Oct. 6China/South KoreaWeek-long holiday
Monday, Oct. 2ThailandSeptember inflation
IndonesiaSeptember inflation
Tuesday, Oct. 3TurkeySeptember inflation
Brazil August industrial production
Romania Monetary policy decision
Wednesday, Oct. 4IndiaMonetary policy decision
PolandMonetary policy decision
Thursday, Oct. 5PhilippinesSeptember inflation
ChileAugust GDP index
ColombiaSeptember inflation
Friday, Oct. 6BrazilSeptember IBGE inflation
Indonesia September foreign reserves
ChileSeptember inflation
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