Photographer: Dhiraj Singh/Bloomberg
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Emerging Market Stocks Post First Two-Week Decline Since July

  • Bloomberg Dollar Index advances to highest in three months
  • Downgrade risks, diplomatic tensions sink rand and lira

Emerging-market stocks and currencies extended declines as the Bloomberg Dollar Spot Index rose to a 3 1/2-month high. Concern of a ratings downgrade pressured the South African rand, while a diplomatic spat with the U.S. led the Turkish lira lower.

A measure tracking developing-market currencies fell for a seventh day Friday, completing its longest losing streak since March 2015 as growing expectations for a U.S. tax overhaul gave traders another reason to bet on the dollar. The MSCI Emerging Markets Index of shares had its first back-to-back weekly decline since July.

Highlights for the week ended Oct. 27:

  • President Xi Jinping cemented his status as China’s strongest leader in decades after the 19th party congress
  • The European Central Bank said it would reduce its monthly bond purchases next year in a step toward ending a program
  • U.S. President Donald Trump is leaning toward appointing Federal Reserve Gov Jerome Powell as the Fed’s next chairman, people familiar with the matter said; Janet Yellen is out of race, as is Kevin Warsh, Politico reports, citing an unnamed source; announcement due next week
  • South Africa Finance Minister Malusi Gigaba painted a bleak picture of the state of the nation’s finances in his first mid-term budget, with growth and revenue set to fall well short of projections made in February
  • Russia’s central bank cut borrowing costs for a fifth time this year, decelerating the pace of monetary easing in an acknowledgment that an unprecedented period of disinflation may be coming to a close
  • Czech billionaire Andrej Babis said he’s preparing to propose a minority government after his party scored a dominant election victory but failed to find a coalition partner among mainstream rivals.
  • Bank of Mexico decided to boost foreign-exchange hedges amid increased market volatility; intervention in the peso market is always an option and Mexican authorities are watching the foreign exchange market, Finance Minister Jose Antonio Meade said
  • Brazil’s central bank cut policy rate by 75 basis points to 7.5 percent as expected
  • Colombia’s central bank unexpectedly cut key rate by 25 basis points to 5 percent amid repeated push from Finance Minister Cardenas for more stimulus as growth faltered.

Asia:

  • China saw strong appetite for its first sale of sovereign dollar bonds since 2004, with demand for the sovereign notes climbing to 11 times the offering size and pricing coming in under initial guidance; People’s Bank of China entered new territory by offering to sell 63-day reverse repos for the first time.
  • China and South Korea are working on a joint statement to announce a deal to resolve Thaad tensions either before or after APEC meeting next month, Chosun Ilbo reports, citing an unidentified government source; the won was the only emerging Asia currency to gain in the week
  • A senior North Korean official said recent threats to test a nuclear weapon made by the country’s foreign minister should be taken “literally”
  • Prime Minister Narendra Modi’s administration will inject an unprecedented 2.11 trillion rupees ($32 billion) into struggling state-run banks over the next two years; government is planning to establish a non-operating holding company to help raise 1.35t rupees through bonds to recapitalize state-run banks, the Economic Times reported, citing an unnamed government official

EMEA:

  • South Africa’s rand and bonds fell; corruption allegations surrounding politically connected Guptas ensnared one of Germany’s biggest companies as SAP SE joined international businesses ranging from KPMG LLP to McKinsey & Co. in reporting links with the family. It comes after the government painted a bleak picture of the nation’s finances, prompting investors to dump South African assets
  • Turkey’s lira was the worst performer after the rand among emerging-market currencies tracked by Bloomberg; the German government is wielding its influence with international development institutions to restrict financing to Turkey over an escalating political dispute
  • In the Czech Republic’s parliamentary election, the party run by billionaire Andrej Babis, who opposes euro membership and blames terrorist attacks on Germany’s immigration policy, won by a record margin and has started coalition talks
  • In a rerun of Kenya’s annulled presidential elections, less than half of registered voters cast ballots in which an opposition boycott guarantees a win for incumbent Uhuru Kenyatta, but raises concerns over its legitimacy
  • Qatar’s stock market fell to a six-year low as U.S. Secretary of State Rex Tillerson said Saudi Arabia’s leaders rebuffed his request in meetings to end the four-month isolation of Qatar
  • Hungary and Turkish central banks kept interest rates unchanged
  • Poland sold 8 billion zloty ($2.2 billion) of new debt in its first auction since June
  • Russia’s one-week auction rate was lowered to 8.25 percent from 8.5 percent, following a cut of half a percentage point last month
    • “The careful approach to monetary policy making that the Russian central bank has been systematically pursuing in the last couple of years will persist,” said Ivan Tchakarov, an economist at Citigroup Inc. in Moscow

Latin America:

  • Argentina raised its key rate by 150 basis points to 27.75 percent; President Mauricio Macri’s reform agenda received a critical boost after his Cambiemos alliance gained ground in congressional mid-term elections
    • The Argentine peso remains a one-way bet for depreciation amid budget deficits and high inflation, Capital Economics says
  • Venezuela’s state-run oil company said it arranged to make an $842 million principal payment on its bonds due Friday, though details about interest payment, which has a grace period, remain unclear
  • Brazil’s Lower House rejected corruption charges against President Michel Temer. Pension reform, which may see its debate reignited in the week of Oct. 30, is seen focused on the three main pillars -- minimum retirement age, transition rule and equality between public and private sectors
    • Brazilian real fell 1.3 percent as pension overhaul outlook remains murky
  • Mexico’s tax amnesty program that started in January and ended this month attracted total repatriation of 341 billion pesos ($17.7 billion), President Enrique Pena Nieto said
    • Absence of inflows, on top of dollar strength and Nafta uncertainties, may keep the depreciation pressure on the Mexican peso, which has extended losses for six straight weeks to about 8 percent

Upcoming data:

Tuesday, Oct. 31ChinaOctober manufacturing PMI
Mexico3Q GDP
ThailandSeptember manufacturing production index, current-account balance
Taiwan 3Q GDP
Turkey, South AfricaSeptember trade balance
Wednesday, Nov. 1China October Caixin manufacturing PMI
BrazilSeptember industrial production 
Thailand, Indonesia, South KoreaOctober inflation 
South KoreaOctober trade data
Thursday, Nov. 2Czech Republic Central bank rate decision
Friday, Nov. 3TurkeyOctober inflation
South KoreaSeptember current-account balance
Malaysia September trade data
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