Investors Flee Risk on U.S.-China Row, Powell Warning

(Bloomberg) -- Emerging-market stocks and currencies fell for a second week amid an escalation in U.S.-China tensions, a dire economic warning from Federal Reserve Chair Jerome Powell and deteriorating global growth data. On the positive side, central banks kept boosting stimulus to combat the impact of the coronavirus pandemic, while a number of countries made progress in easing lockdowns.

The following is a roundup of emerging-market news and highlights for this week through May 17:

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Highlights:

• The U.S. economy faces unprecedented risks from the coronavirus if fiscal and monetary policy makers don’t rise to the challenge, Fed Chair Jerome Powell said while pushing back against the notion of deploying negative interest rates
  • The Fed bought $305 million of exchange-traded funds on the first day of its historic intervention into U.S. corporate debt markets
  • Stock and other asset prices could suffer “significant declines” should the coronavirus pandemic deepen, the Fed said Friday

• President Donald Trump said he doesn’t want to talk to China’s leader Xi Jinping right now and mused about eliminating the largest trading relationship in the world, with tensions high over the coronavirus outbreak

  • Trump said he’s “looking at” Chinese companies that trade on ⁦the NYSE and Nasdaq exchanges but do not follow U.S. accounting rules
  • The Trump administration moved to block investments in Chinese stocks by a government retirement savings fund
  • Trump extended his effort to curb Huawei Technologies’s access to the U.S. market and American suppliers
  • The Trump administration stepped up its campaign of blaming China for the deadly coronavirus pandemic, with a top aide suggesting Beijing sent airline passengers to spread the infection worldwide
• Hackers working for the Chinese government are trying to steal research on coronavirus vaccines and treatments from U.S. health care, pharmaceutical and research organizations, the FBI and the Department of Homeland Security said
  • An army of bot accounts linked to an alleged Chinese government-backed propaganda campaign is spreading disinformation on social media about coronavirus and other topics, according to a London-based researcher
• The cost of the coronavirus pandemic could reach as much as $8.8 trillion, or almost 10% of global gross domestic product, depending on how long the outbreak continues and the strength of government responses, according to the Asian Development Bank
• Mexico’s central bank cut the benchmark interest rate to its lowest level in three-and-a-half years as the country falls into a recession that economists say will be the worst in decades
• Saudi Arabia announced a surprise move to cut oil output as it tries to spur the recovery from an energy crisis that has devastated its finances
• The Paris Club is confident China will take part in a global drive to pause debt payments for poor countries that urgently need funds to battle the coronavirus pandemic
• Egypt kept interest rates unchanged as authorities guard against an emerging-market sell-off and focus on bridging a financing gap spurred by the coronavirus pandemic
• Pakistan’s central bank cut its key interest rate for a fourth successive meeting to support an economy set for its first contraction in 68 years
• Lebanon’s financial prosecutor ordered the detention of a director at Banque Du Liban for alleged currency manipulation, the first such move against a central bank that’s been under heavy scrutiny since the start of the country’s financial crisis

Asia:

• China and the U.S. should continue to develop ties as it’s a core interest of both countries, Ministry of Foreign Affairs spokesman Zhao Lijian said in Beijing
• China’s industrial output increased in April for the first time since the coronavirus outbreak, adding to signs of a recovery that economists cautioned would be slow and challenging
  • An adviser to China’s central bank dismissed the idea of direct monetary financing to aid government bond sales, suggesting instead policy makers cut the amount of money commercial lenders hold as reserves to smooth the issuance
  • China’s factory deflation deepened in April and consumer price gains slowed as its recovery from the virus outbreak lost momentum
  • China’s credit growth in April was stronger than the same period in recent years, signaling the central bank’s easing policy is helping revive domestic demand
  • China injected $14 billion into the financial system as it seeks to help banks handle higher demand for funds
  • Millions of Chinese people are being thrown out of work by the collapse in global demand and a slow restart of the domestic economy
  • China has suspended meat imports from four Australian abattoirs, fueling concern that escalating tensions are damaging the two nations’ trading relationship
  • A Hong Kong-listed oil explorer became the first casualty in China’s offshore bond market of the oil price slump
• The coronavirus pandemic will hammer South Korea’s exports more than the financial crisis did, prompting a major rethink of global supply chains, according to the country’s top trade official
  • The nation’s economy suffered its biggest month of job losses in more than two decades as businesses slashed hiring to brace for the impact of the coronavirus
  • South Korea’s bonds have emerged as a bright spot for global funds investing in emerging markets, with their holdings of the nation’s debt surging to a record in April
• Indian Prime Minister Narendra Modi said his government will spend 20 trillion rupees ($265 billion) to help the economy weather the fallout of the coronavirus

  • India’s government has extended its nationwide lockdown until May 31, while further easing restrictions in certain sectors to boost economic activity as coronavirus cases escalate across the country

    • Finance Minister Nirmala Sitharaman offered $62 billion in credit lines to small firms and the shadow banks that fund them, and another $10 billion to electricity distributors
    • India unveiled a 2.4 trillion rupee program to provide credit to farmers and workers in the informal sector, who are bearing the brunt of the fallout from the coronavirus crisis
    • Indian companies are getting downgraded at the fastest pace ever, adding to challenges for policy makers trying to keep credit markets from seizing up amid the Covid-19 pandemic
• Indonesian officials are becoming increasingly worried about the stability of the financial system amid an exodus in capital caused by the Covid-19 pandemic
  • Bank Indonesia will allow the rupiah to strengthen more than 15,000 per dollar, said Nanang Hendarsah, executive director for monetary management at central bank
  • Indonesia’s central bank can cut interest rates if the financial market stabilizes, according to Governor Perry Warjiyo
  • Indonesia’s central bank should buy sovereign bonds at yields lower than it can get at auctions to share the burden of rescuing the economy, a member of parliament’s finance commission said
  • Indonesia’s parliament approved sweeping changes to the nation’s mining law, allowing it to hand out longer contracts to companies pledging to invest billions of dollars to develop the industry
  • Indonesian borrowers are selling a record amount of dollar bonds as the country’s strong fiscal track record in recent years fuels optimism on its ability to weather the Covid-19 crisis
• Malaysia’s economy unexpectedly expanded in the first three months of the year but is forecast to contract in the second quarter amid the coronavirus pandemic

• Thailand’s billionaires have been told it’s their duty to combat the impact of the Covid-19 crisis, which threatens to exacerbate rising poverty levels

  • Thailand’s tourist-dependent economy is slowly re-opening but the dent from the coronavirus outbreak is so large that weaker borrowers are facing a tough time in the credit market
  • Thailand will allow shopping centers and retail businesses to resume operations in the country’s next stage of lockdown-easing starting from May 17, according to Taweesilp Witsanuyotin, a spokesman for the Covid-19 center
• The Philippines will keep the capital region under a lockdown but will allow some businesses to reopen in the area as it eases curbs in many parts of the country
  • The Philippines expects 45,000 overseas workers to return home in May and June, adding to the 26,700 that have already been repatriated after losing their jobs due to the pandemic
  • The Philippine economy could face its deepest contraction in more than three decades, with the government now projecting it to shrink by 2% to 3.4% this year
  • The Philippines’ House of Representatives initially approved a shorter franchise of until end-October for shuttered broadcaster ABS-CBN Corp., instead of renewing its 25-year permit
  • The country expects unemployment rate to shoot up to double-digit levels this year as the global pandemic shut most economic activities, according to Acting Economic Planning Secretary Karl Chua
• The U.S. Senate unanimously approved a bill seeking the restoration of Taiwan’s observer status with the World Health Organization, escalating a campaign to push back against Chinese efforts to isolate the island
  • Taiwan’s central bank will take the actions of other monetary authorities around the world and the coronavirus outbreak into consideration when deciding its benchmark interest rate, Governor Yang Chin-long said

EMEA:

• Poland’s central bank bought debt of state-run lender BGK and state development fund PFR at an auction, showing the flexibility of its program which to date has been focused largely on government issuance
  • Poland’s lawmakers approved a mixed way of voting in the delayed presidential election, backtracking from a plan to hold the ballot only by mail for the first time
• Investors rushed to take part in Russia’s biggest bond sale in a year as talk of interest rates turning negative in the U.S. and U.K. increased demand for risk assets
  • Russia’s borrowing costs fell to a record as investors bet an economic slump will convince the central bank to keep cutting rates
  • If the situation stays as it is now, Bank of Russia will consider a 100-basis-point reduction as well as other options, central bank Governor Elvira Nabiullina said
• Turkey’s current-account balance sank into its deepest deficit in almost two years, extending a period in the red to four months
  • Turkey posted one of its widest budget deficits on record, as measures to contain the coronavirus outbreak paralyzed economic activity while spending jumped and tax deferrals chipped away at government revenue
• Egypt is seeking more than $5 billion from the International Monetary Fund under a stand-by arrangement and $4 billion from other institutions, an official said
• Saudi Arabia increased taxes and cut spending, potentially worsening its economic crisis
  • Saudi Arabia will trim oil shipments to the prized Asian market in June and cut exports even more aggressively to Europe and the U.S., in a possible sop to President Trump and American shale producers
• Oman will cut public spending by an additional 5% to mitigate the effects of low oil prices and narrow its budget deficit
• The United Arab Emirates rolled out a two-phase plan to reopen the economy amid efforts to contain the coronavirus
• South Africa announced plans to further ease a nationwide lockdown as the fallout from shuttering much of the economy threatens to outweigh the damage wrought by the coronavirus
• A 21-day lockdown of Ghana’s biggest cities became financially unbearable for most of the population, a concern that gave the government little choice when it lifted the restrictions last month, Finance Minister Ken Ofori-Atta said
  • Ghana’s central bank purchased 5.5 billion cedis ($942 million) in bonds to help finance the nation’s budget as weak oil prices and the impact of the coronavirus pandemic are eroding government revenue
  • Ghana’s annual inflation rate surged to the highest level in more than two years in April as food-price growth surged during a lockdown of the country’s biggest cities, limiting room for the central bank to stimulate the economy
• Mozambique’s Constitutional Court nullified $1.4 billion of loans that had been previously undisclosed
• The IMF raised Kenya’s risk of debt distress to high from moderate due to the impact of the Covid-19 shock
• The government of Nigeria, whose revenue could be slashed by more than half this year due to the oil-price slump, finalized plans for a revised budget that keeps spending almost intact, and that will mean more borrowing
• Kenya has abandoned plans to sell commercial debt such as Eurobonds next fiscal year as African countries hold talks with private and institutional creditors about debt-repayment breaks during the coronavirus crisis.

Latin America:

• Argentina’s largest creditors sent Alberto Fernandez’s government new counteroffers in an effort to reach a $65 billion restructuring deal in the coming week

  • Argentina extended a deadline for bondholders to consider a $65 billion restructuring offer to May 22
  • Argentines have been, on net, withdrawing dollars from their bank accounts
  • The largest province, Buenos Aires, is on the brink of default after a delayed debt payment came due
  • Argentina’s monthly inflation rate dropped to a 29-month low as economic activity ground to a halt

• Brazil local media reported that a video of a cabinet meeting showed President Jair Bolsonaro demanding changes to the leadership of the federal police in order to shield his family from criminal investigations; Bolsonaro has denied the allegations

  • Bolsonaro lost his second health minister in under a month as the president’s reopen-at-all-costs stance alienates the medical community and deepens a political clash with state governors
  • A rescue package for airlines in Brazil, including Azul SA, Gol Linhas Aereas Inteligentes SA and Latam Airlines Group SA, will total about 4 billion reais ($688 million), according to people familiar
  • Bolsonaro is weighing compromise proposals on public-sector pay aimed at keeping his economy minister on board without alienating key voters
  • The Economy Ministry cut its 2020 growth forecast for the third time this year
  • Retail sales fell less than economists forecast as a surge in purchases at supermarkets at the onset of the coronavirus pandemic stood out amid broad-based declines

• Mexico’s policy makers are taking care not to jeopardize financial stability as they cut interest rates to soften the impact of the coronavirus, the nation’s top central banker said

  • Industrial production in Mexico fell by 5% from a year earlier
  • Proposals by Mexico’s government to favor state-owned power utilities over new renewable generators stalled at the last minute
  • Mexico’s auto, construction and mining sectors were cleared to restart operations beginning May 18
  • Currency depreciation stoked by the virus has caused Mexico’s debt-to-GDP ratio to rise to 48%
• Chile’s central bank is looking to set up a lending facility with the IMF for the first time in three decades

• Before the coronavirus pandemic hit, Colombia was forecast to be Latin America’s top-performing major economy for the second year running. Now it appears headed for its deepest slump since records began in 1905

  • Colombia said it was increasing its military presence along the border with Brazil amid a jump in virus cases
• Peru’s economy contracted for the first time in more than a decade in March
  • The latest steps by the government increased economic stimulus to 17% of GDP, Finance Minister Maria Antonieta Alva said
• The International Monetary Fund approved $520 million in emergency funding for Jamaica’s Covid-19 response

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