Emerging markets are taking heart from the re-opening 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 & Co.’s measure of implied volatility for currencies has declined for the past five weeks, the longest streak this year.
Purchasing managers’ indexes 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 U.S., 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, which oversees US$542B in assets. “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 U.S. 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-per-dollar level even after pledging to keep the currency stable during the National People’s Congress, which ended last week.
- China’s official manufacturing purchasing managers’ index 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 will be out on Monday and on services 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 market, according to Alexander Wolf, Hong Kong-based head of Asian investment strategy at JPMorgan Private Bank
- After factory output across several Asian countries fell to record lows in April, signaling deeper contraction in the world’s manufacturing hub, investors will get another update for May when a slew of countries around the world began resuming economic activity
- Taiwan, Malaysia, Thailand, Philippines and India will release measures of factory activity on Monday, while Indonesia will report on Tuesday
- South African data Monday may show the manufacturing PMI edged higher in May after the country abandoned some lockdown restrictions and signaled 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 all-time 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 ruble was the best-performing emerging-market currency after the Mexican peso last month as crude recovered more than 40%
- Argentina has until Tuesday to agree on a US$65B 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
- South Korea’s May trade figures will be out on Monday. Export figures in the first 20 days of the month already indicate a grim picture for global trade as a result of lockdowns, with a 20% decline from the same period a year earlier. 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 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 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 impacting growth.