Emerging Markets Turn to China for Risk-On Trigger Amid Languor

(Bloomberg) -- With China rediscovering its appetite for stimulus, the Federal Reserve promising to be patient on rates and optimism surrounding trade talks, emerging markets have good reason to start shaking off February’s lethargy.

Investors looking for the next risk-on trigger will be watching China’s annual National People’s Congress starting Tuesday, as the country’s growth target is likely to signal how much the economy has been affected by the trade war. Friday’s U.S. payrolls report will be key too, though it would only take a much higher-than-forecast reading to convince traders that Fed interest-rate increases this year are back in the cards, some economists say.

“The biggest concern for EM at the moment remains any sharp rebound in U.S. data, which would likely cause the dollar to rally and U.S. rates to rise,” said Paul Greer, a London-based money manager at Fidelity International who is overweight emerging-market currencies, local bonds and credit. “This would be a headwind for EM assets in the short term.”

A Bloomberg index that measures carry-trade returns from eight developing-nation currencies, funded by short positions in the dollar, snapped a three-month rally in February, a sign that a dollar revival could undermine bullish emerging-market bets. Mitigating that risk could be renewed criticism from U.S. President Donald Trump of the Federal Reserve and comments over the weekend that the dollar was too strong.

China’s Goals

Whither Rates?

• Policy makers in Turkey, Poland, Kazakhstan, Peru and Malaysia will decide on interest rates this week. Economists expect all of them to remain on hold following a dovish Federal Reserve
• In Mexico, consumer confidence and inflation data take on added importance after the central bank cut growth forecasts amid an unexpected tumble in retail sales -- fueling speculation on rate cuts. The swap market is showing bets on a decline in borrowing costs in the second half of 2019
• Inflation data from Turkey, Russia, South Korea, the Philippines, Colombia, Hungary, Taiwan will also help investors assess the outlook for monetary policy
• Trade figures from China on Friday will keep markets on their toes after the official gauge of factory output showed a further contraction in February. Similar data will also be reported by Malaysia on Monday and Taiwan on Friday

Reality Check Post Carnival

Romania’s Bank-Tax Row

• Romanian Prime Minister Viorica Dancila will speak in Parliament on Monday and may announce changes to a tax on banks and other industries that’s shaken investors and triggered a market crash
• Read more: Romania Said to Retreat in Bank-Tax Row to Save Debt Grade

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