Reality check looms for emerging markets on trade and China

Sputtering progress toward a trade deal and signs of weakness in the Chinese economy are looming as the biggest threats to the wave of optimism spreading across emerging markets.

Before Friday, developingnation stocks had touched the highest level since May and currencies held near a threemonth high. Then President Donald Trump rattled traders by saying the US hadn’t agreed to a tariff rollback with China, dimming hopes for a preliminary trade deal next month. Beijing wants a deal “much more than I do,” Trump weighed in again on Saturday.

A slew of data is forecast to show weakness spread across China’s economy in October, with production slowing and credit pulling back from a seasonal jump. All of which means the yuan will probably continue to set the tone for trading as its correlation with other emerging-market currencies remains near the record high reached in July. The Chinese currency strengthened past 7 per dollar in its fifth week of gains through Friday, its longest winning streak since February 2018.


“There remains considerable uncertainty about how a phase-one agreement will be secured,” said Mansoor Mohi-uddin, a Singapore-based senior macro strategist at NatWest Markets. “Upside strength in the yuan may also be limited by renewed monetary easing.”