(from my colleague Dr. Win Thin)

In the EM equity space as measured by MSCI, Peru (+6.4%), Russia (+5.9%), and Colombia (+5.7%) have outperformed this week, while Egypt (-2.5%), Qatar (+0.1%), and South Africa (+0.1%) have underperformed.To put this in better context, MSCI EM rose 3.5% this week while MSCI DM rose 2.2%.

In the EM local currency bond space, Peru (10-year yield -23 bp), Indonesia (-15 bp), and Mexico (-12 bp) have outperformed this week, while Argentina (10-year yield +21 bp), Czech Republic (+14 bp), and Turkey (+9 bp) have underperformed.To put this in better context, the 10-year UST yield rose 6 bp to 2.47%. 

In the EM FX space, COP (+3.1% vs. USD), BRL (+2.3% vs. USD), and MXN (+1.8% vs. USD) have outperformed this week, while ARS (-1.7% vs. USD), CZK (-0.1% vs. EUR), and PHP (-0.1% vs. USD) have underperformed.

Tensions on the Korean peninsula appear to be easing. North Korea called for direct bilateral talks with South Korea before the opening of the Winter OIympic Games next month. South Korea responded positively and invited a North Korean delegation to attend the Olympics. Pyongyang accepted, which would seem to lower the odds that it will do something to disrupt the games.

Relations between Pakistan and the US have worsened. The State Department announced it will suspend most of its security assistance to Pakistan. This comes just days after President Trumps tweet criticizing Pakistan. State Department spokeswoman said the suspension of aid would remain in effect until Pakistan takes “decisive action” against the Taliban other terrorist networks.  

The Philippine central bank is tilting more hawkish. Governor Espenilla said that the bank is ready to adjust monetary policy to maintain its inflation target as price pressures increase.He noted that inflation may pick up due to rising oil prices and the new tax law that took effect this month. Officials estimate the new tax law will raise inflation by 0.4-0.7 percentage points during the first year, with the impact tapering off over time.