Emerging stocks steady as China lifts trade hopes, FX mixed

Emerging market stocks steadied on Thursday as talk of renewed US-China trade negotiations calmed investor nerves, although currencies were mixed against a firm dollar.

The MSCI’s EM equity index bounced off early lows to trade up 0.15% after China’s Commerce Ministry said both sides were discussing trade talks scheduled to be held in September, adding that Beijing was willing to resolve the issue calmly.

That came a day after the Trump administration made official its extra 5% tariff on $300 billion worth of Chinese imports.

Chinese shares closed slightly lower, but most stock markets including Hong Kong, Taiwan, South Africa and Russia rose between 0.3% and 1% in European trading hours.

In response, the Chinese yuan turned higher to gain 0.3% in onshore trading, breaking a 10-day run of losses after a firmer-than-expected midpoint fixing by its central bank.

“The China news is good for emerging markets and the CNY in the short term. But if you take a slightly longer perspective, I really do not see much de-escalation for the rest of 2019,” said Morten Lund, an analyst at Nordea Markets.

Emerging markets were roiled in August by a deepening US-China trade dispute that has raised the risk of a slide into global recession, driving the MSCI index of emerging currencies towards its worst monthly loss since May 2015.

The Turkish lira held steady after data showed the foreign trade deficit narrowed 46.9% in July compared with a year ago, while another set showed the number of foreign visitors rose 16.7% versus 18.1% in June.

The South African rand jumped 0.4% but was on course to record its worst monthly loss in a year.

All eyes will turn to Argentina’s market when it opens for trading after its government said on Wednesday the country would negotiate with holders of its sovereign bonds and the International Monetary Fund to extend the maturities of its debt obligations.

“If there are some negotiations going on it will be positive for the peso but we are still sceptical about this going into the presidential election,” Nordea’s Lund said. “We have seen from history that it can go extremely fast in Argentina so we are positioned for another weakening of the peso.”

Worries about Argentina’s ability to meet its dollar-denominated debt obligations have risen since the August 11 primary showed business-friendly President Mauricio Macri enjoyed surprisingly little public support to win a second term in the October election.