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  • Emerging Markets Debt Daily

    Argentina - Turning the Tide

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    July 26, 2019

    Argentina’s economic growth and consumer confidence send encouraging signals to President Mauricio Macri’s re-election campaign. Mexico’s weak domestic activity justifies the market expectation of near-term rate cuts.

    Argentina’s headline economic growth 
    for May looked awesome—albeit the reality was a bit more nuanced. The upside surprise was huge by Argentine standards (+2.6% year-on-year), but most of it was due to a pickup in agriculture, and this factor should become less visible in H2. To be fair, things look better in services and industry, but the improvement was much more gradual. So, while our acute “jumping with joy” reaction lasted only a few seconds, we are happy with the overall direction. The Argentinians feel the same way—the consumer confidence index continued to improve in July, reaching the highest level since early 2018, which is a very good sign for President Macri’s re-election campaign.

    Mexico’s deteriorating growth outlook is getting a lot of attention these days—especially after reports that the central bank may consider shifting to a dual policy mandate. Today’s economic activity proxy for May looked depressing—a small upside surprise notwithstanding. The economy contracted by 0.43% on a year-on-year basis, driven mostly by industrial production. A massive decline in June’s capital imports suggest that this weakness may persist for longer. On the upside, services looked okay. Non-oil exports are also holding on. Today’s numbers look in line with the market expectation of a policy rate cut in the next three months—but next week’s release of Q2 gross domestic product (GDP) should provide more color.

    The preliminary Q2 GDP number in the U.S. gave more credence to the “U.S. divergence” narrative. The quarterly growth surprised to the upside at 2.1%, with consumption looking particularly robust (4.3% quarter-on-quarter). Today’s release should not have a major impact on the Federal Reserve’s decision next week. However, if the U.S.’ strength does not fade in the coming months, the market may need to reconsider its expectations of aggressive easing.


    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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