Emerging markets quiet, weaker with Europe closed for Easter Monday; U.S. stocks plunge

By Rebecca Melvin

New York, April 2 – Emerging market credit was quiet on Monday as U.S. market players returned from the long holiday weekend and markets remained closed in Europe in observance of Easter Monday.

Market tone was negative as U.S. stocks sold off sharply on trade fears and tech stock woes, pushing the major U.S. indexes into correction territory and as uncertainty over rates remained at the forefront.

U.S. Treasuries were little changed after economic data showed U.S. factory activity slipped last month, falling short of estimates. The Institute for Supply Management on Monday said its index of factory activity edged lower to 59.3 for March from 60.8 in February, which was slightly below economists’ forecasts for a reading of 59.8. Any reading above 50 signals rising activity.

Existing emerging markets bonds were mostly weaker, and no new issues were heard to be announced. But it was still expected that issuers would bring deals opportunistically when conditions were favorable, market sources said.

Provoking negative tone was China’s retaliatory trade actions against the United States, imposing tariffs on U.S. pork, fruit, commodities and other kinds of goods. The move was taken in response to the Trump administration’s steel and aluminum import tariffs, which are going to hit Chinese producers.

Meanwhile worries over renegotiation of the North American Free Trade Agreement flared after Presidential Donald Trump tied successful renegotiation of the trade pact with Mexico’s cooperation on immigration.

Despite calls by the Trump administration to wrap up the NAFTA talks by next month, many think this will remain a longstanding issue rather than one that gets resolved in May as Trump had hoped would occur in exchange for allowing Canada and Mexico to be exempt at least temporarily from global steel and aluminum tariffs.

Market players will be watching the market open in Asia and Europe overnight to see if the markets there take on the mood of U.S. investors, who are repricing assets in the face of potentially growth-crimping trade policies. Also on watch is the U.S. jobs report set for release on Friday; investors will watch for clues regarding future Federal Reserve monetary policy. The Fed raised rates in March for the first time this year.

Fears tied to trade, NAFTA

With new China tariffs on more than 120 items that will pinch U.S. farmers and others now in the rearview mirror, fears over about a potential trade war were growing. But Peter Navarro, director of the White House National Trade Council, said U.S. trade actions will not become a tit-for-tat policy. The recent tariffs on aluminum and steel are intended to promote growth, wages and U.S. manufacturing, Navarro said, speaking on CNBC news television. Navarro said that the drop in stocks does not comport with the strength of the U.S. economy, suggesting that trade policy should add thousands of jobs to the economy.

Meanwhile, NAFTA renegotiation after seven rounds of talks, which pushed beyond a soft deadline for successful conclusion, still faces major hurdles in areas such as outsourcing of origin as well as digital trade, labor, environment, intellectual property.

U.S. Trade Representative Robert Lighthizer has said he wants to see talks wrap up in two weeks, especially since April marks the start of presidential election campaigning in earnest in Mexico ahead of a vote slated for July 1.

The Trade Council’s Navarro said on Monday that whether the NAFTA negotiations successfully conclude in two weeks or 30 days, the bottom line is that it has to be soon.

Mexico’s top contender for president, Andres Manuel Lopez Obrador, has said that wages and immigration should be part of the new NAFTA deal, but he favors waiting until after the election to ink a pact.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.