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Fed and ECB inflict fresh blows on currencies, stocks

By Yumi Teso , George Lei , and Alexander Nicholson

The sel..

By Yumi Teso , George Lei , and Alexander Nicholson

The 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 Banks 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.
  • Argentinas peso plunged more than 10 percent even after the nation obtained the biggest International Monetary Fund loan in the organizations 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 wasnt 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 Trumps 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.
  • Brazils Treasury and central bank will continue to act to soften volatility, Finance Minister Eduardo Guardia said.
  • Russias central bank left the policy rate at 7.25%, in line with market expectations. Turkeys 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.


  • 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.
  • Chinas 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 Chinas State Administration of Foreign Exchange said.
  • South Koreas 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 nations 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 Feds 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.
  • Thailands 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 nations military government.
  • The Malaysian ringgit rose; Prime Minister Mahathir Mohamad said hes identified someone to become central bank governor but cant release the name until he gets approval from the king; Nor Shamsiah Mohd Yunus has got job, the Wall Street Journal reported.
  • Pakistans 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.


  • Turkeys lira was the second worst performer in emerging markets in the week after the Argentine peso.
  • Turkeys 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 Moodys 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 nations 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.
  • Russias 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 April
  • Russia 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 Africas 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 Africas 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.

Hungarys forint was the worst performer in eastern Europe; the National Bank of Hungary is prepared to shift policy and tighten monetary conditions if the forints depreciation endangers its inflation target, Deputy Governor Marton Nagy told investors and traders, people familiar with the discussions said.

Latin America:Argentinas 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 Argentinas century bond jumped to 9 percent for the first time.
  • Brazils real resumed its drop; risk of below-target inflation in Brazil has declined, but the fact that its returning to 4 percent over the year doesnt 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.
  • Mexicos 10-year peso bond yield jumped to 8 percent, the highest since 2011.
  • Colombias peso halted a three-week winning streak; the countrys second-round presidential election will be held on Sunday, with center-right candidate Ivan Duque poised for victory.

Original Article


ET Markets


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