Natalia Gurushina, Economist, Emerging Markets Fixed Income
January 28, 2020
Argentina’s Province of Buenos Aires blinked and improved its debt proposal. Russia’s activity indicators disappointed, justifying administration’s renewed pro-growth push.
Argentina’s debt talks had an interesting twist yesterday. Province of Buenos Aires blinked and improved its proposal to delay principal payment on a global 2021 bond by offering to pay “the total and advance” interest for the period from January 27 to May 1. The decision was made after the original proposal was accepted by only 26% of the creditors, and while the province is running out of time to avoid default. Argentina’s Economy Minister is still in the U.S., meeting with government officials and the International Monetary Fund (IMF), but so far there were no new details on sovereign debt restructuring.
Russia’s latest domestic activity numbers show why the administration feels is should focus more on growth. All of today’s releases—including real retail sales and cargo shipments—missed expectations by a wide margin. Yearly growth is still positive, but it remains stuck at low single-digits and there are no signs of a breakthrough. Russia’s new cabinet is in place and its pro-growth mandate includes better implementation of national projects. New Prime Minister Mikhail Mishustin’s background indicates that he can deliver on this front, pushing Russia’s real GDP growth above 2% in the next couple of years.
Mexico’s December trade balance shows that there is a silver lining in soft domestic activity numbers. December’s trade surplus was the largest in history of the indicator (USD3.07B—see chart below), strengthening the economy’s external buffers. Policy-wise, the release proves that the economy would benefit from additional monetary stimulus. The market fully agrees, pricing in 67bps of rate cuts in the next six months.
Chart at a Glance: Mexico’s Trade Surplus Reaches Historic High
Source: Bloomberg LP
IMPORTANT DEFINITIONS & DISCLOSURES
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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