INSUBCONTINENT EXCLUSIVE:
By Yumi Teso , George Lei , and Alexander NicholsonThe selloff in emerging markets showed few signs of abating as a combination of mounting
trade-war concerns, slightly hawkish Federal Reserve and the European Central Bank’s decision to phase out asset purchases pummeled stocks
and currencies.
The MSCI Emerging Markets Index of equities slumped 1.9 percent for the week, the biggest drop in a month, while a gauge
tracking developing-market currencies fell to a six-month low
The Bloomberg Barclays index of EM local-currency government bonds lost 0.2 percent in a second weekly decline.
Highlights for the week
ended June 15:The Fed raised interest rates by a quarter point for the second time this year in a widely expected move
Eight participants now see four or more hikes this year, compared with seven at the prior meeting.The ECB said it would end asset purchases
by the end of the year, but also pledged to keep interest rates at current record lows at least through the summer of 2019
The more dovish-than-expected outlook for borrowing costs weighed on the euro and boosted the dollar.President Donald Trump moved the U.S
closer to a trade war with China by announcing tariffs on $50 billion of Chinese goods and pledging additional investment curbs, effective
next month; Beijing swiftly retaliated.ETF investors dumped emerging-market stocks in a fourth week of outflows, the worst losing streak in
two years.Argentina’s peso plunged more than 10 percent even after the nation obtained the biggest International Monetary Fund loan in the
organization’s history; Luis Caputo took over as head of the central bank after the surprise resignation of Federico Sturzenegger.North
Korean leader Kim Jong Un agreed to work toward complete denuclearization in a joint statement with President Trump, but the term wasn’t
defined and there was a lack of detail on what would happen next; U.S
Secretary of State Mike Pompeo said he expects North Korea to take major steps toward nuclear disarmament during Trump’s first term.The
Brazilian real finished the week lower; the central bank offered a total of $5 billion in FX swaps on Thursday, its biggest daily sale on
record.Brazil’s Treasury and central bank will continue to act to soften volatility, Finance Minister Eduardo Guardia said.Russia’s
central bank left the policy rate at 7.25%, in line with market expectations
Turkey’s lira was among the worst performers; President Recep Tayyip Erdogan can win the presidential vote in the first round on June 24
with 50.8 percent support and get the backing of a majority in parliament, according to a June 7-11 survey, though a surprise victory for
the opposition is also within the margin of error.Asia:The Chinese yuan fell while the Shanghai Composite Index of stocks closed at the
lowest since 2016 as economic data for May showed the economy is losing steam.China’s central bank held off from immediately raising
borrowing costs following the Fed as May retail sales, industrial production and fixed-asset investment all missed estimates.A 20 percent
limit on repatriating funds for companies in the Qualified Foreign Institutional Investors program has been removed, the China’s State
Administration of Foreign Exchange said.South Korea’s won was the worst performing Asian currency, falling 2 percent against the dollar as
investors were underwhelmed by the Trump-Kim summit: the ruling Democratic Party swept 14 of 17 metropolitan mayoralties and provincial
governorships, including the capital Seoul.The Indian rupee extended a two-week slide as the current-account deficit widened by more than
forecast in the first quarter on rising oil; inflation accelerated to 4.87 percent in May on the year from 4.58 percent the previous
month.India may reduce the issuance of short-tenor bonds, said Economic Affairs Secretary Subhash Garg.The Philippine peso slipped as the
nation’s benchmark index dropped 2.7 percent for the week, the most since March, as foreigners kept pulling out funds.Bangko Sentral ng
Pilipinas will consider the Fed’s interest rate increase and its outlook when it meets on June 20, Governor Nestor Espenilla said; the
central bank moved the meeting day forward by a day.Thailand’s baht had the worst week since 2015 while 10-year government bonds had their
first weekly decline in three; elections will definitely be held in February 2019, said Prayuth Chan-Ocha, the leader of the nation’s
military government.The Malaysian ringgit rose; Prime Minister Mahathir Mohamad said he’s identified someone to become central bank
governor but can’t release the name until he gets approval from the king; Nor Shamsiah Mohd Yunus has got job, the Wall Street Journal
reported.Pakistan’s rupee sank after the central bank devalued the currency for the third time since December amid mounting economic
pressure and speculation the country may need International Monetary Fund support.EMEA:Turkey’s lira was the second worst performer in
emerging markets in the week after the Argentine peso.Turkey’s central bank said it expects inflationary pressure to continue in
June.State-run Anadolu Agency cited President Erdogan as saying the nation will conduct an "operation" against Moody’s after June
24.“State of emergency can be declared again should there be a problem,” Erdogan said, qualifying a June 8 comment that the state of
emergency may be lifted after the June 24 elections.The nation’s economy grew 7.4 percent in the first quarter, while the current-account
deficit was $5.43 billion in April, bigger than the estimate for a shortfall of $5.15 billion.The Borsa Istanbul 100 index fell to the
lowest since April 2017 before rebounding on Friday.Russia’s local-currency 10-year bonds fell for a third week, lifting yields 15 basis
points to 7.67 percent as the ruble had its worst week since AprilRussia plans to raise the retirement age and increase the value-added
tax.Saudi Arabia wants to continue cooperation with Russia on oil, Crown Prince Mohammed bin Salman said at Kremlin talks with Russian
President Vladimir Putin.South Africa’s rand sank 2.7 percent in the week; business confidence retreated from a three-year high in the
first quarter, while retail sales missed estimates, rising at slowest pace since February 2017.FTSE/JSE Africa All Share index dropped,
ending a two-week winning streak.Downside risks to South Africa’s economic outlook are “prominent,” with spending pressures and a
higher public-wage bill potentially raising financing costs and damping growth, the IMF said.The government spelled out its case against
suspended tax chief Tom Moyane.Hungary’s forint was the worst performer in eastern Europe; the National Bank of Hungary is prepared to
shift policy and tighten monetary conditions if the forint’s depreciation endangers its inflation target, Deputy Governor Marton Nagy told
investors and traders, people familiar with the discussions said.
Latin America:Argentina’s peso extended an 8-week losing streak; the
government plans to sell as much as $7.5 billion in the foreign-exchange market to support budget expenditures once it gets access to a
credit line from the IMF; the IMF said its executive board will vote on the credit line June 20
Argentine truck drivers went on a nationwide
strike and other labor unions have threatened to join the stoppage.The central bank held its benchmark interest rate at 40 percent and
indicated it would stay high until inflation starts to cool.Yields on Argentina’s century bond jumped to 9 percent for the first
time.Brazil’s real resumed its drop; risk of below-target inflation in Brazil has declined, but the fact that it’s returning to 4
percent over the year doesn’t seem to be out of the base scenario, central bank President Ilan Goldfajn said in an interview with
Estado.The Ibovespa stock gauge fell to the lowest since August 2017.The Mexican peso retreated for a third week; Andres Manuel Lopez
Obrador, the favorite to win the presidency election, will work to calm investors and business leaders who have been anxious about some of
his promises, such as an audit of oil contracts, his campaign chief said.Nafta renegotiations will continue through the summer as all three
countries agree to work toward a deal, Canadian Foreign Minister Chrystia Freeland said after a meeting with U.S
Trade Representative Robert Lighthizer.Mexico’s 10-year peso bond yield jumped to 8 percent, the highest since 2011.Colombia’s peso
halted a three-week winning streak; the country’s second-round presidential election will be held on Sunday, with center-right candidate
Ivan Duque poised for victory.
