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What has changed in EM - BBH

Marc Chandler, Global Head of Currency Strategy at Brown Brothers, shares his views on the emerging markets, with key quotes found below.

China announced that it will remove foreign ownership limits on banks and allow foreign companies to take majority stakes in local securities firms, fund managers, and insurers.  The move is just the latest in China’s efforts to open up its financial system, and coincides with President Trump’s visit this week.  Regulators are still drafting details, which Vice Finance Minister Zhu said will be released soon.

Central Bank of Turkey lowered commercial bank FX reserve requirements in an effort to support the lira.  It estimated that about $1.4 bln in FX liquidity will be injected into the system as a result.  The bank also said it will allow exporters to repay around $5 bln of loans coming due through February 1 in liras instead of FX at fixed preferential rates.

US-Turkey relations appear to be thawing slightly.  Officials confirmed reports that the US is partially lifting its ban on issuing travel visas in Turkey, with Turkey reciprocating the move.  Prime Minister Yildirim traveled to Washington to meet with Vice President Pence this week, but his demands to extradite cleric Gulen is a non-starter.  We do not see any significant improvement in US-Turkey relations ahead.

Middle East tensions are rising on a variety of fronts.  Lebanese Prime Minister Hariri abruptly and unexpectedly resigned, and comes just after Saudi Arabia arrested many princes and senior officials on corruption charges.  This follows a missile attack in Riyadh by Yemen rebels, which Saudi Arabia claims was orchestrated by regional rival Iran.  

Argentina central bank unexpectedly hiked rates again.  The move is the second in less than a month, and takes the policy rate up 100 bp to 28.75%.  The bank said that beyond the resilience in headline and core inflation, it was anticipating the likely impact of a scheduled increase in natural gas and electricity rates by end-2017.

Former President Cardoso called on his PSDB party to quit the government coalition.  Otherwise, he predicted that the party would only play a minor role in 2018 elections.  He added that the PSDB must continue to support reforms proposed by the Temer administration even if it leaves the coalition.  The PSDB is in turmoil, as interim party President Jereissati was just dismissed.  

Press reports suggest that Brazil pension reform is dead in the water.  Globo writes that "After meeting with allied leaders on Monday, the team of President Michel Temer made the following diagnosis about the Social Security reform: it will no longer be approved in the current government.”  Other press reports estimate that Temer has only 280 votes in the lower house supporting the reforms, whilst 308 are needed.  

 

GBP/USD consolidates gains near 1.32, up more than 100 pips on week

After advancing to its highest level at 1.3228 since the sharp sell-off witnessed after the BoE meeting earlier this month, the GBP/USD pair went into
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Fed’s Bullard: Fed policy rate about right where it is

 St. Louis Fed President James Bullard is speaking on Bloomberg Radio, delivering the key quotes, via LiveSquawk, found below. Fed policy rate about
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