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Growth woes get in the way of emerging-market rally

Emerging market review.

Emerging-market stocks halted a six-week rally last week amid concern over the outlook for US-China trade talks and a global economic slowdown. The reduced appetite for risk also sent currencies down.

The following is a roundup of emerging-markets news and highlights for the week ending February 9.

Highlights:

In his State of the Union speech, President Donald Trump said a trade deal with China will have to address not only what he called the chronic US trade deficit but also changes in Chinese policies to protect American workers and businesses.

Trump said he won’t meet President Xi Jinping before a March 1 deadline to avert higher tariffs on Chinese goods. The two countries will hold deputy-level negotiations on trade in Beijing starting Monday, followed by meetings with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin February 14-15. At the White House Earlier in the week, Trump said his administration was “ doing very well” in the trade talks, at the same time as refusing to rule out another government shutdown or other action to get funding for a US-Mexico border wall.

The total US deficit in goods with China jumped by $37.6 billion, or 10.9%, in the first 11 months of 2018 compared with a year earlier. The US president said he’ll meet with North Korean leader Kim Jong Un in Vietnam on February 27-28.

India’s central bank unexpectedly cut borrowing costs under its new chief, potentially helping Prime Minister Narendra Modi spur investment before elections due by May Lebanon’s dollar bonds rallied after the nation said it’s in talks with allies to secure financial backing that would help it manage one of the world’s biggest debt burdens.

President Cyril Ramaphosa unveiled plans to revive the flagging economy; he also vowed to rescue the ailing state power utility by providing it with financial support and splitting it into three entities.

Pemex bonds jumped after Mexico’s President Andres Manuel Lopez Obrador said he would announce measures to help the debt-laden company.

Russia was raised to investment grade at Moody’s Investors Service, which cited the nation’s strength amid US sanction risks

Asia:

Trump said farmers are going to be “ very happy” that China pledged to buy several million metric tons more of US soybeans in the months ahead.

The Trump administration said the World Trade Organization can’t fully address China’s trade abuses and a more aggressive, unilateral response is needed Onshore financial markets were shut for Lunar New Year holidays the entire week.

India’s central bank will remove 20% overseas investment limit in corporate debt. It will also ease overseas borrowing rules so that bidders for insolvent companies can raise funds overseas to repay domestic lenders. The Ministry of Finance sought lawmakers’ approval to spend an additional 1.98 trillion rupees ($28 billion) for the financial year ending March 31, according to the third batch of supplementary demands for grants presented in parliament.

The US reached a cost-sharing deal with South Korea over American forces on the Korean Peninsula, days after the Trump administration demanded that Seoul pay as much as 50% more Indonesia’s sovereign bonds posted a second weekly rally; the economy grew faster than economists expected last quarter. The country’s current account deficit swelled to the highest in four years after a currency rout spurred a foreign investor exodus.

The Bank of Thailand’s monetary policy committee voted 4-2 to keep its policy rate unchanged at 1.75%, with two calling for a hike to 2%. The central bank said accommodative policy is still appropriate Princess Ubolratana Rajakanya was named the prime ministerial candidate for a party linked to former premier Thaksin Shinawatra in one of the country’s biggest political upheavals, Princess’s candidacy is against royal tradition and the constitution, King Maha Vajiralongkorn said according to a Royal Gazette statement. The party that nominated her as candidate said it accepted King’s command Prime Minister Prayuth Chan-Ocha agreed to be the candidate for prime minister for the Palang Pracharath party.

The Philippine peso was among the top performers in Asia; the central bank left its policy rate unchanged at 4.75% and cut inflation forecasts for this year and next Consumer prices rose 4.4% in January from a year earlier, less than the 4.5% estimated by analysts. Further deceleration in inflation gives Bangko Sentral ng Pilipinas “ more space” to review its current monetary policy, Deputy Governor Diwa Guinigundo said Guinigundo said the central bank isn’t in a rush to cut lenders’ reserve requirement ratio while liquidity remains sufficient and inflation isn’t firmly back on target. Treasurer Rosalia de Leon said the nation plans to raise up to $2 billion from yen and yuan bond markets and plans to hold economic briefings in Osaka this month and in Beijing in March as it prepares to tap bond markets.

EMEA:

The rand was the worst performer; optimism that sent the currency to its biggest January gains since 1986 has given way to doubts Ramaphosa’s rescue plan for Eskom will work.

Turkish President Recep Tayyip Erdogan escalated his campaign to seize the nation’s largest listed lender, Turkiye Is Bankasi A.S., calling for a parliamentary vote on the takeover.

Foreigners made their highest net purchases of Saudi shares on record last month as the inclusion of local stocks in major benchmarks outweighed concerns sparked by the killing of Jamal Khashoggi.

Russia posted the fastest economic growth in six years, prompting a wave of speculation that the government could be cooking the books. The central bank kept the key rate unchanged, following a hike in December, as a rally in the ruble and weak consumer demand tempered a spike in inflation.

Poland kept borrowing costs at a record low as a more dovish mood among major central banks bolsters its quest to avoid rate hikes for a decade.

The ex-Soviet republic of Uzbekistan has hired banks for a debut Eurobond sale.

Zimbabwe President Emmerson Mnangagwa invited opposition leaders for talks after a violent crackdown on anti-government protests over an economic crisis.

Latin America:

Brazil’s real was among the under-performers; the central bank held its key rate unchanged and signalled that Congress needed to approve cost-cutting measures before borrowing costs can fall. The pension reform proposal is expected to be sent to Congress on the week of February 19 or when President Jair Bolsonaro recovers from surgery, according to Social Security Secretary Rogerio Marinho. The president is responding well to new medication aimed at fighting pneumonia, a spokesman said on Friday.

House speaker Rodrigo Maia pledged support to the pension bill, while Senate President Davi Alcolumbre said lawmakers see the reform as priority.

Iron-ore giant Vale SA lost the license to operate a dam key to production at one of its largest mines, following the deadly dam burst last month Mexico’s central bank voted unanimously to leave rates at a decade high after the currency rebounded and the Federal Reserve pivoted to a more dovish tone.

Mexico’s inflation slowed more than expected in January; consumer confidence soared beyond all economist estimates last month.

Argentina’s central bank is confident it has resources to quench potential demand for dollars ahead of the October presidential election, according to two people with direct knowledge of the matter.

© 2019 Bloomberg L.P

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