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  • Emerging Markets Debt Daily

    Argentina—Populism Fears on the Rise

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    August 13, 2019

    Argentina’s presidential front runner did little to dissipate the market’s concern about populist policies. India’s inflation fully justified the central bank’s unconventional rate cut.

    Argentine markets are still trying to find the bottom after yesterday’s aggressive selloff. But the risk of contagion to wider emerging markets (EM) looks limited so far. The focus now shifts to policy signals from the presidential front runner Alberto Fernández. Unfortunately, his first speech did little to dissipate concerns about populism. On the one hand, Fernández said “the right thing” about not wanting to default on the country’s debt. On the other, he criticized the overall economic framework of the current government. He also suggested that the short-term debt level was unsustainable and that President Mauricio Macri’s policies attracted only speculators and hot money.

    India’s inflation print for July shows that the central bank’s unconventional 35 bps policy rate cut was completely justified. Yearly headline inflation eased to 3.15%, staying well below the 4% target—with the cyclical slowdown limiting potential upside pressures. The currency weakness is an obvious risk here, especially against the backdrop of escalating tensions between India and Pakistan.

    Concerns about the deepening global downturn continue to weigh on EM sentiment. Even though the growth momentum in the U.S. looks stronger relative to developed market peers (the U.S. small business optimism index was up again in July, while Germany’s ZEW1survey dropped to 7.5-year low), the U.S.’ regional Federal Reserve Banks see real gross domestic product growth moderating to 1.6-2% in Q3. This is likely to fuel the market expectation of additional rate cuts in the coming months. A gradual build-up in U.S. core inflation pressures, however, might affect the pace of such easing.

    1The monthly ZEW survey aggregates the sentiments of approximately 300 economists and analysts and is used as an indicator of the economic future for the coming six months.


    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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