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  • Emerging Markets Debt Daily

    Argentina’s Rebound: Is It Finally Here?

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    June 27, 2019

    There are more signals that Argentina’s macro is finally turning, which is good news for President Mauricio Macri’s reelection campaign. Turkey continues to tweak regulations to minimize the currency’s downside.

    A nice rebound in Argentina’s economic activity is welcome news for President Macri’s election campaign
    . April’s contraction was much smaller than expected (-1.3% year-on-year), and this takes place against the backdrop of stronger external accounts and a better inflation outlook. The trade surplus exceeded expectations in May (USD1.37B), driven not only by weak imports but also by recovering exports (see chart below). Regarding inflation, the latest estimates suggest that monthly price growth moderated to 2.5% in June. This means that yearly inflation has peaked in May and should start falling from now on—potentially to or just below 40% by year-end. Argentina’s macro turnaround—even a modest one—is President Macri’s best chance to boost his reelection chances in the tight race.

    Turkey continues to look for ways to minimize the currency’s downside while the government is working on its policy agenda in the aftermath of the Istanbul elections fiasco. One proposal mentioned today is to cut the upper limit for the central bank’s foreign exchange maintenance facility (currently 30%), which allows banks to use foreign currency instead of the lira to meet their reserve requirements. There is no question that tightening the lira liquidity can push the currency stronger, but a longer-term impact depends on the overall policy direction, which remains uncertain. Morning headlines suggest that the government wants to rely even more on fiscal channels to boost growth, while using a bigger portion of the central bank’s profits to finance the expansion.

    South Africa’s headlines about the departure of the central bank deputy governor Daniel Mminele produced some commotion this morning, as (1) Mr. Mminele is deeply respected in the macro community and (2) this is the second resignation from the central bank’s monetary policy committee in six months. The central bank’s institutional reputation is very solid, so multiple personnel changes can be a bit unnerving—especially with recent demands to modify the central bank’s mandate. For now, the situation seems under control—a likely replacement (Ms. Fundi Tshazibana) is a credible professional, but the central bank is likely to remain under scrutiny until the mandate issue is resolved.

    Chart at a Glance

    Argentina Exports and Imports Growth

    Source: VanEck Research; 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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