Emerging markets may be headed for a period of increased volatility as the midyear lull saps liquidity and the US-China dispute leaves traders struggling to decipher the yuan’s likely direction.
Chinese, Taiwanese and Philippine trade data for July this week will give an indication of whether the trade tension is starting to weigh on regional exports. The standoff has already prompted BlackRock Inc., the world’s largest asset manager, to trim its holdings of developing-nation assets, saying that it may be one of many dynamics weighing on global growth. US data on initial jobless claims, scheduled for release, are forecast to increase, according to Bloomberg.
“With uncertainty on US-China trade issues in the backdrop, EM will certainly react to any developments, either escalation or détente, from the US side,” said Maximillian Lin, a Singapore-based emerging markets Asia strategist at NatWest Markets.
A gauge of expected price swings in emerging markets climbed to the highest level since February 2017 on Monday, while the offshore yuan’s one-week implied volatility jumped to a six-month high last week. And the negative correlation between dollar-yuan and developing-nation currencies has deepened since April as the two counties exchange blows.
The onshore yuan is the worst-performing
emerging-market currency after Turkey’s lira in the past month, which spurred action from Chinese policy makers. The People’s Bank of China will impose a reserve requirement of 20 percent on some trading of foreign-exchange forward contracts, it said in a statement Friday evening.
Investors will watch how the various market-drivers — from central-bank action and the volatility in technology stocks — will affect developing-nation assets ‘when markets are thin’, said Richard Segal, a senior analyst at Manulife Asset Management Ltd. in London.
“The emphasis should be on keeping durations short and focusing on higher-quality credit over the next month.”

Philippines, Romania set to hike rates

● In Asia, Bank of Thailand and Bangko Sentral ng Pilipinas have rate decisions on Wednesday and Thursday, respectively
● The Philippine central bank raised its policy rate in May and June in an attempt to curb accelerating inflation and support one of Asia’s worst-performing currencies this year. BSP Governor Nestor Espenilla has pledged to make a ‘strong follow-through monetary adjustment’
● Romania’s central bank was expected to hold a rate meeting on Monday, with a majority of analysts predicting an increase to 2.75 percent, as policy makers seek to rein in inflation running above target
● Argentina’s central bank meets, after the country’s production minister speculated that rates, currently at a world-topping 40 percent, are falling. The peso slumped last Wednesday after the central bank surprised markets by announcing a reduction in the daily FX auction, seeking to contain the loss of international reserves. The currency is down more than 30 percent this year and has been under pressure as traders fear high rates may push the nation into a recession
● Hungary’s July inflation data and minutes of the central bank’s latest rate meeting on Wednesday may provide more clarity on whether the National Bank of Hungary’s loose policy is still appropriate
● Peru also decides on rates onThursday
● Brazil swap and currency traders will scan minutes of last week’s monetary policy meeting for insight into how inflation could affect the path of interest rates. Policymakers kept rates unchanged at a record low last week and acknowledged that pressure on emerging markets had eased. That decision, coupled with a strong stock-market performance at the end of the week, helped the real outperform peers on Friday
 

Over the past few years, Nigeria, Africa’s top oil exporter, has been beset by a multitude of problems, notably decreased crude production and exports, oil theft and pipeline attacks, stalled economic reforms and recovery, and the threat of oil price volatility. While the Nigerian oil industry has been cautiously optimistic about overcoming these upheavals in 2018, the nation has and will continue to face several acute challenges.
In May 2018, the Nigerian petroleum industry underwent production complications as outages at key pipelines supplying Forcados and Bonny Light grade crudes were out of commission. In particular, the shutdown of the Nembe Creek Pipeline in mid-May, which transports 150,000 bpd of Bonny Light to the Forcados terminal, caused Shell Petroleum Development Company of Nigeria to declare a force majeure on Bonny Light crude exports. Although Shell has declined to comment, there is speculation this shutdown was due to sabotage. Shell lifted the force majeure on July 13th, when repairs were completed, OilPrice.com reported.
This shutdown has, in conjunction with the closure of the leaking Trans-Forcados pipeline, which transports 200,000-240,000 bpd, led to further delays and an accumulation of unsold crude. According to S&P Global Platts, these factors caused Nigeria’s oil production to drop by 150,000 bpd from 1.88 mbpd in April, dropping it to 1.73 mbpd in May and 1.72 mbpd in June.
Facing these supply concerns, oil exports are expected to decline further to 1.43 mbpd throughout July. According to Reuters, 48 cargoes of oil exports are expected to be loaded in July, compared with 60 cargoes in June. In July, 20-34 million barrels of Nigerian oil has gone unsold as traders have sought alternative supplies. Marketing Nigerian crude grades has become difficult due to the price spread between Brent and the West Texas Intermediate, which gives an advantage to WTI petroleum over Brent-priced ones.
 

Gold’s plunge to the lowest level in more than a year may be close to ending, and prices could climb back to $1,300 by December, according to ICBC Standard Bank Plc.
Bullion is set to average $1,260 an ounce in the third quarter and rise further in the following three months as interest rate increases are priced in and physical demand emerges, Marcus Garvey, a London-based commodities strategist, said in an interview in India, Bloomberg wrote.
“We are going to see almost certainly two US interest rate hikes come this year, but they are already, if not fully priced, fairly nearly. So there isn’t a huge scope for a surprise there.”
Gold’s appeal has been fading this year with prices sliding near to the key $1,200 level, partly because of an upbeat outlook on the US economy that’s strengthened the dollar. The metal saw some relief as US hiring cooled in July and China moved to support its currency.
 “There is a risk in the short term for a dip below $1,200 if the current market dynamics persist,” Garvey said on the sidelines of a conference in Kochi.
“But looking at the next six months, we are actually around the bottom for this cycle already, so it is more suited in the long term for investors as a decent level for purchasing for their portfolios,” he said.
Although the headline level for the US business cycle looks very healthy, there are some concerns over credit stress, making it questionable whether the US consumer can withstand materially higher interest rates, he said.
The view that bullion’s pain may be nearing an end is shared by Nic Johnson, a Pacific Investment Management Co. money manager, who said late last month that falling gold prices in the absence of rising real yields suggest the metal has cheapened versus other US-denominated haven assets. That along with comments by President Donald Trump ‘lamenting the strong dollar’ could reignite interest in the metal, he said in a blog.

 

South Korea has opened an agriculture technology support center in Ghana to transfer advanced farming know-how to the African nation, the state-run rural development agency said on Monday.