Too many risks for EMs to get lift from China data

Emerging markets may need more than a surprise recovery in Chinese manufacturing to exorcise the pain of November.Though data on Saturday unexpectedly showed China’s official manufacturing PMI surged past the 50 level for the first time since April, the on-off state of the trade talks, currency weakness in Latin America against a backdrop of popular unrest, and a slump in India’s economic growth are likely to curb investor enthusiasm.MSCI Inc’s gauges of emerging market stocks and currencies dropped for the third successive week in the five days through Friday, capping their first November declines since 2016. A Bloomberg Barclays index of local-currency bonds fell for a fourth straight week.A combination of falling relative returns, the slowing pace of interest-rate cuts and a weakening growth outlook are keeping emerging markets in check headed into December. And there’s little sign of a turnaround any time soon, according to HSBC Plc.“The conditions are not seen coming together for emerging-market currencies to stage a broad-based recovery,” Hong Kong-based Paul Mackel and Ju Wang said in a note Friday. “It will be another frustrating year for EM foreign exchange.” China’s Retaliation Markets are waiting for China’s response after President Donald Trump signed a bill backing Hong Kong’s protesters, a move that could complicate the signing of the phase one trade deal. China’s foreign ministry reiterated a threat of retaliation on Thursday.The Hong Kong bill requires annual reviews of the city’s special trading status under US law and sanctions officials deemed responsible for human rights abuses and undermining the city’s autonomy. A second Hong Kong measure also bans the export of crowd-control items such as tear gas and rubber bullets to the city’s police.“The market is back on Beijing watch to see if this bill could be a trade deal breaker,” Stephen Innes, chief Asia market strategist at AxiTrader in Bangkok, wrote in a note. “The big question is, does China decide to compartmentalise the Hong Kong issues away from the phase one deal? So that’s where the risk lies now.” China’s government wants tariffs to be rolled back as part of the phase one trade deal with the US, according to a report, citing unidentified people in Beijing.India’s deepening slowdown is raising the pressure on the central bank to extend its monetary easing when it meets on Thursday. The Reserve Bank of India will lower the benchmark rate by 25 basis points to 4.9%, according to the median of 16 economist forecasts compiled by Bloomberg.GDP growth tumbled to 4.5% in the July-September quarter from 5% in the previous three-month period, the first time it’s been below 5% since 2013, data showed on Friday. Policy makers could make a deeper reduction of 40 basis points if growth surprises to the downside, Bloomberg Economics said before the report was released.The Reserve Bank of India has been the most aggressive among emerging Asian central banks to cut rates this year, lowering a combined 135 basis points since February. The rupee is the worst performer among emerging Asian currencies in the second half of this year, losing 3.8%.Elsewhere in Asia, China will report Caixin PMI for manufacturing and services on Monday and Wednesday, respectively. Factory PMIs from Taiwan, South Korea, Malaysia, Thailand, Philippines, Indonesia and India are due on Monday. Malaysia will release its trade data for October on Wednesday. Inflation data will come on Monday from South Korea, Thailand and Indonesia, while Taiwan and the Philippines will release their own on Thursday.South Korea’s exports fell more than expected in November, a trade ministry report showed Sunday. Exports dropped 14.3% from a year earlier in November for a sixth straight double-digit decline, the data showed.Chile will be in the spotlight today as the central bank embarks on the first stage of an intervention strategy announced last week to contain swings in the peso. The bank will sell $200mn each day next week, and place another $200mn in the forwards market. The peso was the worst-performing currency in emerging markets in November, weakening 8.6%.