Emerging Markets: What Changed - Friday, Sept. 14

(from my colleague Dr. Win Thin)

US Treasury Secretary Mnuchin announced that he invited his China counterparts for another round of high-level trade negotiations.

Czech central bank has signaled another imminent rate hike.

The European Parliament voted to censure Hungary for eroding democratic values.

The US State Department announced that it is working on the second round of sanctions on Russia for November.

Central Bank of Russia delivered its first rate hike since 2014.

Central Bank of Turkey delivered a hawkish surprise, raising all rates by 625 bp.

Former Brazil President Luiz Inacio Lula da Silva officially endorsed his running mate Fernando Haddad as the PT candidate.

Incoming Mexico President Andres Manuel Lopez Obrador (AMLO) pledged to boost Pemex spending.

In the EM equity space as measured by MSCI, Colombia (+4.4%), Russia (+4.0%), and Mexico (+3.1%) have outperformed this week, while Brazil (-4.5%), Egypt (-2.7%), and Hungary (-2.7%) have underperformed. To put this in better context, MSCI EM rose 0.5% this week while MSCI DM rose 1.4%.

In the EM local currency bond space, Turkey (10-year yield -84 bp), Malaysia (-7 bp), and Mexico (-6 bp) have outperformed this week, while the Philippines (10-year yield +88 bp), Brazil (+30 bp), and Hong Kong (+14 bp) have underperformed. To put this in better context, the 10-year UST yield rose 12 bp to 2.99%.

In the EM FX space, TRY (+4.0% vs. USD), RUB (+2.8% vs. USD), and MXN (+2.5% vs. USD) have outperformed this week, while ARS (-7.2% vs. USD), BRL (-3.1% vs. USD), and PHP (-0.4% vs. USD) have underperformed.To put this in better context, MSCI EM FX rose 0.1% this week.

US Treasury Secretary Mnuchin announced that he invited his China counterparts for another round of high-level trade negotiations. However, President Trump undermined the notion of improved relations be saying that “We are under no pressure to make a deal with China, they are under pressure to make a deal with us.”Chinese state media tried to set low expectations while noting that China can survive a prolonged trade war.