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  • Emerging Markets Debt Daily

    Argentina Intervention Tricks Are Back

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    April 29, 2019

    The market welcomed Argentina’s decision to step up currency interventions, but it remains to be seen whether the optimism (and money) will last. A small rebound in Turkey economic confidence failed to inspire the market.

    The Argentine central bank (BCRA) stepped up its efforts to reduce the currency’s volatility
    , following last week’s carnage. The BCRA announced this morning that it will increase the amount of daily currency interventions from USD150M to USD250M and that it might intervene even if the peso is trading within the currency band. International Monetary Authority Chief Spokesman Gerry Rice issued a statement supporting the central bank’s actions, saying that they were “well calibrated to the challenges facing Argentina”. The peso opened sharply stronger at the opening, but there is a lot of skepticism regarding the sustainability of the new strategy. The fact that the BCRA may end up having even less ammunition going into the elections is quite unnerving.

    A slight rebound in Turkey’s April economic confidence failed to inspire the market. The confidence index remains well below the post-2009 highs (see chart below), as authorities are struggling to improve the growth outlook and bring down prices. This week’s data release calendar is very heavy—April’s inflation and the March trade balance are at the top of the list as they will provide additional color on the pace of macro adjustment.

    This morning’s macro flow in the U.S. looked distinctly dovish. Stronger than expected personal spending came on the back of a lower savings rate, while personal income surprised to the downside, with the yearly growth rate moderating to 3.8%. The PCE core price index also undershot consensus, easing to 1.6% year-on-year in March—the unit labor costs’ dynamics in 2018 signals that price pressures are likely to remain contained in the coming months. Today’s numbers help to explain why the market continues to price in one full rate cut by the Federal Reserve in the next 12 months.

    Chart at a Glance

    Turkey Economic Confidence Index

    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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