Trade war escalation sends shock waves amid sell-offs

Emerging-market equities saw their worst rout since October
2018, while currencies extended a four-week losing streak as trade clashes
intensified between the world’s two largest economies. The US ratcheted up
tariffs on $200bn (about R2.8bn) of goods from China, which vowed to retaliate.

The following is a roundup of emerging-markets news and
highlights for the week ending May 10.

Asset Moves as of 16:20 in New York on Friday: Weekly MSCI
EM stocks index -4.6%. MSCI EM FX index -0.5%. Bloomberg Barclays Global EM
Local Currency bond index (up to Thursday) -0.6%.

Highlights:

Trump administration increased tariffs on more than $200bn
of Chinese goods to 25% from 10%; China said it would retaliate, though it
hasn’t specified how as yet. US and China concluded high-level trade talks on
Friday, lacking a deal yet avoiding a breakdown in negotiations; President
Trump says the talks are constructive while removal of tariffs will depend on
future negotiations.

American officials gave China a month to reach a deal or
face tariffs on all its exports to the US, according to two people familiar
with the matter. China’s President Xi sent Trump a letter about working closely
together to ease trade tensions and the two might speak over the phone.

The Trump administration will expand the number of countries
it scrutinises for currency manipulation in an upcoming report, people familiar
with the matter said, after lowering the bar for foreign governments to come
under scrutiny.

Malaysia’s central bank cut its benchmark interest rate for
the first time since July 2016, trimming it by a quarter percentage point to
3%; its Philippine counterpart also lowered its key rate by 25 basis points to
4.5%, the first reduction since an operational adjustment to the rate in 2016
North Korea is once again pressing the boundaries of what it can get away with,
returning to missile tests in violation of international sanctions championed
by Trump.

South Africa’s ruling African National Congress leads with
57.3% of the votes after 90% of ballots were counted, according to the
Independent Electoral Commission.

Central banks of Brazil, Chile and Peru left their
respective policy rates unchanged amid a challenging growth outlook. Venezuela
detained National Assembly Vice President Edgar Zambrano in Caracas, marking
the first major arrest since opposition leader Juan Guaido called on the armed
forces to revolt against the government on April 30.

Asia

China’s exports unexpectedly fell and imports rose in April,
before the abrupt escalation of the trade dispute with the US. The nation’s
inflation rate rose to the highest in six months in April, while producer
prices climbed faster than analysts expected. Credit growth slowed more than
forecast in April after jumping in the first quarter.

The country’s stashing away more gold in its coffers as the
central bank boosted bullion reserves for a fifth straight month, recording the
biggest inflow since 2016. This year is shaping up to be the biggest by far for
defaults in China’s $13 tr bond market. The time is approaching for South Korea
to start getting concerned about inflation being “excessively low,” said
Bank of Korea policy board member Cho Dongchul.

Sole proprietorship loans by non-bank financial companies
have increased rapidly and will require careful management, said Kim Yongbeom,
vice chairman of the Financial Services Commission. Malaysia’s Finance Minister
Lim Guan Eng met with Fitch, Moody’s and S&P, who were convinced that the
country will achieve its fiscal targets, he said.

Foreign ownership of Malaysian government and corporate
bonds and bills fell 5.2% to 180.1bn ringgit ($43bn) in April, the lowest since
March 2017. A senior leader of Indian Prime Minister Narendra Modi’s ruling
party forecasts it will require the support of allies to form the next
government, the first time the prospect of a coalition has been raised.

Indonesia’s economic growth slowed in the first quarter amid
a global slowdown that hurt the nation’s exports. Foreign reserves were little
changed at $124.3bn in April; first-quarter current-account deficit widened to
2.6% of GDP from revised 2.01% in same period a year ago.

The Bank of Thailand kept its key rate unchanged at 1.75% as
expected and said the economy is expected to grow at a slower pace than earlier
estimated.

The Election Commission allocated so-called party-list
seats, a day after certifying 349 members of parliament who won in their
constituencies. The results point to a pro-military governing coalition.

The Philippine economy grew at the slowest pace in four
years in the first quarter. Exports dropped more than expected in March and the
trade deficit came in larger-than-predicted; inflation slowed for a sixth
consecutive month in April. Nation plans to sell yuan-denominated debt in the
week of May 13 after raising €750m ($842m) in its return to the euro
bond market following more than a decade of absence, Treasurer Rosalia de Leon
says.

EMEA

Turkey’s High Election Board ordered a re-run of mayoral
elections in Istanbul, overturning a defeat for President Recep Tayyip Erdogan
and sending the lira plummeting as concerns grew over what critics say is the
latest assault on the rule of law. The central bank stepped in to tighten the
supply of liras on Thursday by raising borrowing costs for lenders and making a
series of changes to reserve requirements to bolster the battered currency.

Turkey denies news reports suggesting it will abandon plans
to buy advanced Russian missile systems; US had threatened to sanction Turkey
if it proceeded with the purchase Surging fuel, alcohol and tobacco prices
pushed Hungarian inflation near the central bank’s acceptance limits,
contradicting official forecasts for a slowdown and increasing pressure for
further monetary tightening.

Bahrain said it will receive about $2.3bn this year from a
five-year support package provided by its Gulf Arab allies as the
island-kingdom seeks to reduce its budget deficit and debt.

The nation is said to plan a return to the international
bond market this year Zimbabwean President Emmerson Mnangagwa assured foreign
investors that they will access their dividends and are free to choose who they
want for local partners. The central bank governor said he expects the official
and black-market exchange rates to converge within two months, as the currency
extended its decline against the dollar to almost 25% since February.

Russia kept up its run of elephantine debt sales, netting
more than $1bn (about R14bn) in a single ruble-bond auction on Wednesday

Latin America

Brazil held its benchmark interest rate at a record low and
signaled that a period of weaker-than-expected growth is still insufficient for
reduced borrowing costs. Retail sales rose less than almost all analysts
expected in March, as falling confidence hinders credit growth even with
historically low interest rates.

Economists slashed their 2019 growth forecast by more than a
percentage point in the past three months, as investment and consumer demand
stalled due to uncertainty about the approval of pension reforms.

Mexico President Andres Manuel Lopez Obrador scrapped a
round of bids to build an $8bn (about R113bn) refinery, instead handing
responsibility for the project to troubled Petroleos Mexicanos.

State-oil company
Pemex will now take the lead in building the refinery based in the president’s
native Tabasco state and has about $2.6bn (about 36bn) to begin works, Pemex
bonds sold off after the news.

More cargo to the US from Mexico is being held up at the
border, accompanied by increasing evidence that such delays are dimming
prospects for American companies.

In the boldest sign yet that Venezuela is abolishing its
complex web of financial controls, the government lifted controls on banks
trading foreign currency; the move comes 16 years after former President Hugo
Chavez imposed controls, but may prove to be too little too late as the country
grapples with hyperinflation and a historic economic depression.

Chile and Peru left their key interest rates unchanged at 3%
and 2.75% respectively as economic growth remains muted. Argentina’s former
President Cristina Fernandez de Kirchner, who is leading opinion polls ahead of
October’s general election, spoke in public for the first time this year
without commenting on whether she would run as a presidential candidate.