Emerging markets look steady despite Covid-19 cases still climbing

Singapore/Cape Town — Emerging markets are taking heart from the reopening of virus-battered economies around the world, while the rate of infections in some countries shows little sign of easing.

Developing-nation stocks and bonds rose for a second month in May and currencies were steady as investors drew comfort from government and central-bank stimulus efforts and optimism a coronavirus vaccine will eventually be developed. JPMorgan Chase’s measure of implied volatility for currencies has declined for the past five weeks, the longest streak in 2020.

PMIs across emerging markets this week may offer clues to whether economies are turning the corner after easing lockdown restrictions. But the spread of the virus is barely letting up. Brazil now has more cases than any country except the US, Russia isn’t far behind and Mexico had its largest single increase in both cases and deaths last week.

“A more convincing emerging market-specific recovery will likely require clearer signs of being past the worst moments in countries continuing to see rising cases,” said Morgan Harting, a New York-based money manager at AllianceBernstein.

“We’ve started to see some of the more beaten down parts of the capital markets play catch-up and there’s a great deal of focus on how sustained this trend will be and how broadly it’s felt across emerging markets.”

Tension between Washington and Beijing may also weigh on sentiment as the clock ticks down to the November US election, though President Donald Trump stopped short of imposing economic sanctions on China in his speech on Friday. The focus will also be on whether the People’s Bank of China will let the yuan depreciate past the psychologically important 7.20/$ level even after pledging to keep the currency stable during the National People’s Congress, which ended last week.

Manufacturing data

China’s official manufacturing PMI declined to a worse-than-expected 50.6 in May from 50.8 a month earlier. The data indicate that the nation’s recovery from the pandemic shutdowns risks faltering after an initial rebound supported by pent-up demand.

The Caixin gauge on manufacturing showed the sector rose back above 50, data showed on Monday. The measure, which is focused more on smaller firms and exporters, strengthened to 50.7. The Caixin survey for services will be out on Wednesday. The offshore yuan briefly touched its record low of 7.1965 last week. A further decline in the offshore yuan will also be negative for emerging markets, according to Alexander Wolf, Hong Kong-based head of Asian investment strategy at JPMorgan Private Bank

Asia’s factory managers remained downbeat about the world’s trade engines in May, even as battered economies start to reopen across the region

PMIs for South Korea, Japan and Taiwan fell, according to data released by IHS Markit on Monday. Readings for Vietnam, Malaysia, Thailand and the Philippines improved but remained below 50, the dividing line between contraction and expansion

SA data on Monday may show the manufacturing PMI edged higher in May after the country abandoned some lockdown restrictions and signalled its intension to lift others in June. The gauge likely remains well below the 50 level, which is the dividing line between expansion and contraction

Poland’s May PMI data on Monday may show the gauge rebounded from a record low in April. On Friday, the nation will present official reserves data for May

Yields on government bonds dropped to record lows last week after the central bank unexpectedly cut borrowing costs for the third time in three months

Russia’s manufacturing PMI probably climbed in May from a record low in April, though still remaining far below the 50 level, according to the median estimate in a Bloomberg survey.

The rouble was the best-performing emerging-market currency after the Mexican peso in May as crude recovered more than 40%.

Argentinian deal?

Argentina has until Tuesday to agree on a $65bn debt-restructuring solution with bondholders after its ninth default

While still at odds over several key issues, the latest changes in the proposals by the government and two groups of creditors published Thursday signal the difference between both sides is narrowing. Argentina is now weighing extending the deadline for its offer beyond June 2, giving the parties more time to reach a deal, according to people with direct knowledge of the matter. Government tax revenue for May is due on Tuesday

Trade and inflation

South Korea’s exports posted another double-digit decline in May in a sign of continuing pain from the coronavirus pandemic with the vehicle sector among the worst hit. Overseas shipments fell 24% from a year earlier, the trade ministry said Monday, slightly less than economists forecast. Final first-quarter GDP figures will be released on Tuesday. The won has been Asia’s biggest currency loser this year

Inflation figures will be released by South Korea and Indonesia on Tuesday, while those from Thailand, the Philippines and Taiwan will be out on Friday. Foreign reserves data will be announced by South Korea on Wednesday, while Taiwan, Malaysia, Thailand and the Philippines will report on Friday

Turkey’s consumer prices probably held steady at an annual 10.9% rate, data may show on Wednesday. Inflation has slowed for two months running, thanks to lower oil prices and an economic slowdown as the country went into a partial lockdown. Still, “demand-driven disinflationary effects will be more prevalent in the second half of the year,” the central bank said last week. The lira strengthened in May, halting a seven-month losing streak

Brazil’s industrial production data from April will be watched on Wednesday for signs that the pandemic is weighing on activity. A dramatic decline in output could prompt the central bank to cut interest rates at its next meeting. Despite a comeback in recent weeks, the real is still the world’s worst-performing currency this year

Colombia’s central bank will release minutes from its May meeting on Monday, shedding light on a decision to lower borrowing costs. May inflation figures, posted on Friday, are forecast to show a decline from a year earlier as the pandemic and measures to contain it drag on the economy

The Colombia peso outpaced most of its emerging-market peers in May as oil prices climbed

A reading of Chile’s April economic activity gauge, planned for Monday, will be watched for clues on how social-distancing measures in some neighbourhoods are affecting growth

Bloomberg