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  • Emerging Markets Debt Daily

    No Inflation Concerns in South Africa

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    June 19, 2019

    South Africa’s inflation dynamics leaves room for policy rate cuts later this year, but tomorrow’s state of the nation address is key. Turkish state banks’ interventions might have shielded the lira from the negative impact of the U.S. sanctions headlines.

    A slight upside surprise in South Africa’s headline inflation is unlikely to have a major impact on the central bank’s policy stance
    . The increase came on the back of higher food prices, while yearly core inflation remained unchanged at 4.1%, undershooting expectations (see chart below). Today’s release leaves room for the central bank to cut rates later this year—in line with the market expectation of 39bps of easing in the next six months. President Ramaphosa’s state of the nation address is the key event tomorrow, as it should provide more clarity on the government’s policy priorities, including plans for the state energy giant, Eskom.

    Turkish assets were under pressure this morning following the U.S. threat to impose sanctions over the government’s decision to buy a Russian missile-defense system. The lira managed to regain the ground later in the day, most likely aided by state banks’ interventions. The U.S. announcement comes just days before the re-run of Istanbul’s mayoral elections and shortly after the European Union’s warnings about Turkey’s offshore drilling alongside the Cyprus coast. So, the geopolitical backdrop looks quite dense right now, introducing additional variables for the central bank to consider in its policy decisions.

    Argentina’s presidential elections suspense shows no signs of easing. The former mayor of Buenos Aires, Sergio Massa, decided not to fight the opposition presidential candidate in the August primaries, clearing the battle ground between the opposition and the incumbent. The participation in the primaries is obligatory, and this makes them the best pre-election opinion poll, with a potential to change the dynamics going into the first round. The economy’s performance is a major factor that can make a lot of difference, so every macro release from now on will be scrutinized more than usual. Lower inflation and improving global domestic product prospects would strengthen incumbent, President Macri’s, chances of getting re-elected—so keep your eyes on the Q1 GDP print this afternoon.

    Chart at a Glance

    South Africa Inflation

    Source: Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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