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  • Emerging Markets Debt Daily

    Brazil Advances Toward Rate Cuts

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    June 25, 2019

    Brazil’s mid-month inflation decelerated sharply, leaving room for rate cuts if pension reform is approved. South Africa’s domestic activity shows signs of improvement, but structural support is essential for stronger growth.

     mid-month inflation print looked very reassuring. Yearly inflation decelerated sharply to 3.84% (from 4.93% at the end of May), and available details (core inflation, below-50% diffusion index) show that price pressures are contained across the board. The monetary policy minutes published this morning confirmed the dovish policy bias, leaving room for rate cuts if/when the pension reform bill is approved in the lower house.

    This morning brought another sign of a tentative rebound in South Africa’s domestic activity. The central bank’s leading indicator surprised to the upside in April, coming on the heels of stronger than expected retail sales and manufacturing production. The main concern is that the recovery is still very shallow and likely to wither without a more concerted effort on the structural front. The state of the nation address hit a lot of right notes, but implementation remains key. This especially applies to the state-owned energy giant, Eskom, whose operational issues are a major drag on growth.

    The recent improvement (however marginal) in Argentina’s macroeconomic indicators is having a measurable positive impact on government confidence. The confidence index, constructed by a local university, went up from 1.6 to 1.86 in June, getting closer to the coveted 2.0 threshold, which is deemed consistent with the incumbent’s victory in the forthcoming presidential elections. Each macro release is now “worth its weight in gold”, so tomorrow’s economic activity for April and Q1 current account balance will be closely watched.


    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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