EM Review: Risk wagers returned as trade talks set to resume

Emerging-market equities and currencies posted their biggest weekly gains since June as the prospect of renewed U.S.-China trade talks, expectations of a September Fed rate cut and easing tensions in Hong Kong bolstered risk sentiment. Central banks in Chile, China and Russia eased monetary policies by cutting interest rates or the required reserve ratio.

The following is a roundup of emerging-markets news and highlights for the week ending Sept. 6.

Highlights:

• Federal Reserve Chairman Jerome Powell said policymakers will act “as appropriate” to sustain the U.S. expansion after August non-farm payrolls grew less than expected; the developments reinforced bets that the Fed will lower interest rate by 25bps at its Sept. 17-18 meetingFederal Reserve Bank of Boston President Eric Rosengren said the U.S. economy remains “relatively strong” despite clearly heightened risks, leaving him unconvinced the central bank needs to cut rates at its meeting this month
• A key U.S. factory gauge unexpectedly contracted for the first time since 2016. The Institute for Supply Management’s purchasing managers index fell to 49.1 in AugustStill, data Thursday showed the services sector is expanding, hiring continues apace and durable goods are being bought
  On Friday, weak August job gains signaled the U.S. labor market’s slowdown is deepening as the trade war with China takes a toll on the economy
• President Donald Trump sought to prod China into doing a trade deal before the U.S. presidential election in November 2020, or face even more difficult negotiations during his potential second termChina and the U.S. announced that face-to-face negotiations aimed at ending their tariff war will be held in Washington in the coming weeks, amid skepticism on both sides that any substantive progress can be made
• China hasn’t requested a delay in tariffs set for Oct. 1 and there are no conditions ahead of upcoming trade talks, White House economic adviser Larry Kudlow told Bloomberg
  China shrugged off Trump’s latest escalation of the tariff war, with state media signaling the government is ready to weather the economic turbulence as no progress to resolve the standoff is in sight. The Trump administration slapped tariffs on roughly $110 billion of Chinese imports on Sept. 1China’s central bank reduced the required reserve ratio by 50bps to the lowest level since 2007, injecting liquidity into an economy facing both a domestic slowdown and trade-war headwinds; the new ratio will take effect on Sept. 16
• China is filing a complaint at the WTO against U.S. tariffs under the dispute settlement mechanism, the Ministry of Commerce said
  China’s exports unexpectedly contracted in August, with sales to the U.S. tumblingExports decreased 1% in dollar terms from a year earlier, while imports declined 5.6%, leaving a trade surplus of $34.84 billion, the customs administration said Sept. 8. Economists had forecast that exports would grow 2.2%, while imports would shrink by 6.4%. Shipments to the U.S. fell 16% from a year earlier
• Hong Kong’s embattled leader, Carrie Lam, formally withdrew legislation to allow extraditions to ChinaHong Kong cut to AA from AA+ as months of persistent conflict and violence are testing the perimeters and pliability of the “one country, two systems” framework that governs its relationship with China, Fitch says in statement
  South Africa averted a second recession in as many years after economic growth rebounded in the second quarter
• JPMorgan Chase & Co. will start a phased inclusion of Chinese government debt into its benchmark emerging-market indexes, potentially ushering in a fresh overseas influx into the world’s second-largest bond market
• Saudi Arabia removed Energy Minister Khalid Al-Falih from his position as Chairman of Saudi Aramco, the second time his role has been scaled back in less than a week, as the government prepares to sell shares in the state-owned oil company King Salman replaced him with his son, Prince Abdulaziz bin Salman, a longtime top Energy Ministry official

  EMEA:

• The pieces are falling into place for Turkey’s central bank to follow its record interest-rate cut with more monetary easing as inflation heads for lows not seen since last year’s currency crashPresident Recep Tayyip Erdogan repeated his expectations that lower borrowing costs would give a boost to Turkey’s sluggish economy, a clear signal to the nation’s central bank a week before it decides on the level of the benchmark interest rate
  The nation’s economy fared better than forecast in the second quarter, but growth will likely fall far short of the government’s expectations for the full year
  Former economy czar Ali Babacan is planning to establish his own political party by the end of this year to challenge Erdogan’s 16-year rule, a person close to Babacan said
  South Africa’s central bank is “comfortable” with its forecast that the economy will grow 0.6% this year, Governor Lesetja Kganyago saidThe nation’s current-account deficit widened in the second quarter to the highest level in more than a year as the trade balance swung to a deficit for the first time since the first quarter of 2018
  Russia’s central bank lowered its key policy rate by 25bps to 7%, in line with market expectations; policymakers said more monetary easing is possible as inflation fell closer to a 4% target
  Robert Mugabe, who ruled Zimbabwe for 37 years and plunged the southern African nation into political and economic chaos as he violently clung to power, has died. He was 95
  Nigeria wants to offer naira futures of as long as 10 years to help cushion against foreign-exchange risks and attract longer-term funding to Africa’s top oil producer
  Ghana’s central bank has additional space to loosen policy thanks to the global move toward lower interest rates, as long as inflation slows, according to Governor Ernest Addison
  Lebanon bought itself some time with the market and won a reprieve from a downgrade deeper into junk by S&P Global Ratings
  Bonds of Aabar Investments sank the most on record after auditors raised concerns about the financial well-being of the company, the second-largest shareholder of Italian lender UniCredit SpA
  A group of international funds including BlueBay Asset Management are clubbing together with Middle Eastern investors, seeking to force Etihad Airways into paying back bonds that funded its overseas affiliates
  Dubai will set up a committee to balance property supply and demand as a slump in prices weighs on developers in the Middle East’s business hub
  The U.S. placed new sanctions on Iran, and a top American official signaled more measures are coming while deflecting questions about French diplomatic efforts meant to help Tehran restart oil sales
  Egypt’s stock exchange aims to introduce short selling by December, part of a broader effort to boost liquidity in a market that’s also anticipating a wave of initial public offerings and stake sales by public-sector companies.