EM review: Stimulus actions help outweigh second wave concerns

Highlights:

• Covid-19: Brazil’s Covid-19 infections reached the 1 million mark; Mexico reported record numbers of daily cases
  • At least 158 people have been infected in a new outbreak in Beijing after a lull of two months without cases in the capital. Officials are trying to strike a balance between containment and keeping the economy running in the city
  • Indonesia surpassed Singapore as the country with the highest number of infections in southeast Asia
  • A surge in cases in Iran may prompt renewed lockdowns
  • US states including Texas, Florida and Arizona reported a jump in cases
• US Macro: The Federal Reserve said it would begin buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency-lending program so far focused only on exchange-traded funds
  • Fed Chair Jerome Powell urged Congress not to pull back too quickly on federal relief for households and small businesses
  • The Trump administration is preparing a near $1 trillion infrastructure proposal as part of its push to revive the economy, according to people familiar with the matter
• US-China Relations: US Secretary of State Michael Pompeo said China’s top foreign policy official committed in a meeting to honor all of his nation’s pledges under the phase-one trade deal
  • President Trump signed a measure punishing Chinese officials for imprisoning more than a million Muslims on the same day a new book alleged he encouraged Beijing to build internment camps to house them
• Argentina extended a deadline for bondholders to accept a debt-restructuring proposal for a fifth time after talks hit a roadblock; the new date is July 24
  • Both creditors and the government submitted new restructuring proposals earlier
  • Argentina’s Ad Hoc and Exchange Bondholder groups said in a joint statement Friday after the extension was announced that they’re “united in disappointment” about the decision to “terminate dialog” with creditors at a critical juncture
• Brazil’s central bank left the door open to more monetary easing after cutting rates by 75 basis points to a record low 2.25% to support the economy
• Mexico’s airliner Aeromexico is considering filing for Chapter 11 bankruptcy, according to sources; firm said it hasn’t made a decision yet
• The Asian Development Bank cut its inflation forecast for developing Asia to 2.9% from 3.2%
• North Korea destroyed an inter-Korean liaison office on its side of the border, and pledged to move troops into a disarmed border area
• Chinese and Indian soldiers attacked each other with stones, iron rods and bamboo poles along their disputed border; 20 Indian soldiers and an unknown number of Chinese were killed
• Indonesia’s central bank cut rates for the first time in three months and lowered its growth outlook
• Poland may be opening a new line of defence for the pandemic-hit economy after cutting interest rates to near zero
• Russia lowered interest rates by the most in five years and signalled another reduction is likely
• A rebound in appetite for emerging-market exchange-traded funds proved to be short lived as outflows resumed

Asia:

• China will sell 1 trillion yuan ($141 billion) of special sovereign bonds by the end of July, with the proceeds used to combat the impact of the coronavirus, according to people familiar
  • China’s cabinet signalled the central bank will act to make more liquidity available to banks so they can lend more
  • China’s economy continued to inch out of the coronavirus slump in May, although growth in industrial output was slower than forecast and consumer demand remained sluggish
  • China will push the financial industry to sacrifice 1.5 trillion yuan in profit this year; central bank wants the total flow of credit to rise by almost a fifth in 2020
  • G-7 foreign ministers urged China to reconsider its plan to impose a new national-security law on Hong Kong; China’s top legislative body started deliberations on the legislation
• South Korea announced new steps to curb overheating in the property market, underscoring its concerns about the side effects of liquidity pumped into markets
  • South Korea warned the North against further provocations, saying the latter must bear the consequences of its actions
• India’s trade fared slightly better in May than a month ago as restrictions eased
  • The country’s credit score moved a step closer to junk after Fitch Ratings cut the outlook to negative, citing weak growth prospects and rising public debt
• Indonesia lowered its outlook for economic growth to a range of 0% to 1%, while warning of the possibility of a full-year contraction
  • The nation registered a larger trade surplus than forecast in May, as a 42% decline in imports outweighed a larger-than-expected drop in exports
• The Philippine central bank governor said the peso’s recent depreciation wasn’t a concern and excess liquidity in the financial system is unlikely to stoke inflation
  • The Philippines will keep Manila under loose restrictions, allowing most businesses to continue operating even as coronavirus cases rise
  • The country is weighing new taxes to fund economic stimulus
  • Bank of the Philippine Islands says it plans to issue what will be the country’s first Covid Action Response Bonds
  • Nation’s current account swung to a $92m surplus in 1Q
• Thai Cabinet has approved a 22.4 billion baht ($723 million) package to boost domestic tourism
  • The biggest party in Thailand’s pro-military ruling coalition is due to pick a new leader soon, a step that’s expected to strengthen the stability of the government
• Taiwan has passed the worst economic damage from the coronavirus, according to the central bank, which kept rates unchanged and forecast an upturn in the second half
  • Taiwan launched an investigation into three men accused of spying on behalf of Beijing
  • Taiwan’s central bank stepped in to FX market in June due to “huge” foreign inflows in a short space of time after outflows seen in January to May, governor Yang Chin-long said

EMEA:

• Turkey airlifted commandos into northern Iraq, stepping up a military drive against Kurdish militants after its parliament kicked out two pro-Kurdish lawmakers on separatism charges
• Belarus raised $1.25 billion in international debt markets, seizing on a revival in global credit availability to secure long-sought financing
• Russia is comfortable with an oil price of about $50 a barrel, a level that would cover the government’s financial needs and wouldn’t create problems for consumers
• Germany’s top prosecutor filed charges against a Russian citizen for a murder in a Berlin park last summer, saying it was a contract killing ordered by officials from Moscow
• Poland’s central bank warned of the risks to an economic recovery from an overvalued currency after keeping rates unchanged at 0.1%. The new signal is tantamount to a verbal intervention that it would like to see a weaker zloty, analysts said
• Saudi Aramco will consider selling bonds or taking on loans to help meet its commitment to paying dividends, Chief Executive Officer Amin Nasser said
  • The world’s biggest oil exporter, has begun cutting hundreds of jobs as it looks to reduce costs after a slump in energy prices, according to people familiar
  • Aramco has negotiated more time to pay for an almost $70 billion acquisition of Saudi Basic Industries Corp. as this year’s slump in oil prices stretches its finances
• Morocco’s central bank delivered the biggest rate cut in history and exempted lenders from holding cash in reserves, looking to jolt an economy emerging from a three-month lockdown
• Egypt’s bond market has been humming for months, helped by a stable currency and elevated interest rates. It may now take a more flexible pound to help keep investors coming back
• Israel’s consumer prices plunged more than expected despite the central bank’s spate of foreign-currency purchases designed to weaken the shekel and boost inflation
• The US imposed sanctions on Syria’s President Bashar Al-Assad and his wife as the Trump administration increases pressure on the regime in an effort to end the nine-year civil war
• South Africa told asset managers and banks it needs 1.5 trillion rand ($86 billion) of infrastructure investment over the next decade, the country’s biggest specialist fixed-income fund said
  • The nation’s debt levels will exceed 100% of gross domestic product in 2025 and rise to almost 114% before the end of the decade, according to a document presented by Finance Minister Tito Mboweni and seen by Bloomberg
  • It will ease lockdown rules for a third time since imposing them in March and allow a range of businesses including eat-in restaurants, casinos and beauty salons to reopen despite an increase in coronavirus infections
• Namibia’s central bank, whose currency is pegged to South Africa’s, diverged from its neighbour’s moves on monetary policy for the first time in two years as the country seeks to balance supporting its economy with safeguarding investment inflows
• Banco de Mocambique cut its benchmark rate for a second meeting as it tries to boost growth, and counters risks from the coronavirus pandemic and an Islamist insurgency
• Zimbabwe’s central bank abandoned a currency peg it introduced in March and said it would allow the rate to be set by an auction system
• Nigerian companies are poised to raise a record amount of local short-term debt as businesses take advantage of a drop in borrowing costs
• China said it would waive some African nations’ debt and is willing to provide further support including loan-maturity extensions to free up funds needed to deal with the coronavirus
  • Developed nations are considering financial support for a plan to relieve African countries of debt payments without triggering default, according to the United Nations committee steering the initiative
• Ghana’s economic growth slowed to the least in four years in the first quarter

Latin America:

• The International Monetary Fund has extended its safety net under some of Latin America’s biggest economies as the pandemic hits the region particularly hard
• Brazil’s police arrested a former aide to one of President Jair Bolsonaro’s sons for participation in an alleged corruption scheme, fuelling political tensions
  • Supreme Court voted to move forward with a sprawling fake news investigation targeting some of Bolsonaro’s most influential supporters
  • Treasury Secretary Mansueto Almeida decided to leave the post in July and Education Minister Abraham Weintraub stepped down after repeatedly clashing with Supreme Court justices
  • Economic activity index tumbled 15.1% in April from a year earlier
• Argentina’s government announced a swap for peso bondholders for as much as $1.5 billion in new dollar-denominated local law bonds
  • The province of Mendoza plans to miss a debt payment, which would make it the third Argentine issuer to default this year, according to sources
  • Fidelity Investments sold a large chunk of its Provice of Buenos Aires bonds in recent months, according to sources
  • Coronavirus cases may peak in Argentina sometime between the end of June and beginning of July, the health minister said
• Chile’s central bank tripled its forecast for an economic contraction this year after keeping the interest rate unchanged at a record low and saying it would stay there for the next two years
  • Officials announced an asset-purchase program for as much as $8 billion and increased a credit line to commercial banks
  • Chile has among the world’s highest rates of per-capita infections, and its once-praised health minister has been forced to resign
• Mexico’s president will tone down his rhetoric against business leaders, a close senator said
  • Finance minister said the country’s recovery would be much slower than its rate of contraction
• Colombia is ditching its fiscal deficit targets until 2022 and the debt burden is expected to rise to 66% of GDP this year from 50% in 2019
  • Colombia can’t wait another three years to fix its public finances, Fitch Ratings said
• Peru’s economic activity slumped more than 40% in April from a year earlier
• Honduras sold $600 million in 10-year bonds, becoming the lowest-rated nation in Latin America to sell dollar debt amid the pandemic
  • President Juan Orlando Hernandez was hospitalised with Covid-19
• Belize is seeking relief from foreign debtholders for the third time since 2012

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