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  • Emerging Markets Debt Daily

    Brazil Growth Loses Steam

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    January 08, 2019

    Reducing policy uncertainty is key for improving the growth outlook in Brazil. Weak activity prints in Central Europe echoed an unexpected drop in Germany’s industrial production.

    The below-consensus industrial production print in Brazil (-0.9% year-on-year) highlights the fact that the economy is facing several macro challenges in the aftermath of the presidential election. On the upside, the capital goods growth remained positive (3.4% year-on-year), and we think this should help to support domestic activity going forward. The central bank’s low(-ish) key rate should also be a boon. However, reducing policy uncertainty - especially regarding social security reform - may take more time. We hope that today’s cabinet meeting, which is expected to include discussion of pension reform details, will provide more clarity on the subject.

    The Central European data flow remains very much in focus, following a series of disappointing regional activity surveys. Today’s industrial production print in the Czech Republic also surprised to the downside at 4.8% year-on-year, but it may not be weak enough to prevent additional rate hikes, especially if the koruna resumes weakening. Hungary’s industrial production was a tiny bit stronger than consensus, but a 3.5% year-on-year growth rate is unlikely to wake the central bank up from its dovish coma.

    A shocking broad-based drop in Germany’s industrial production (-4.7% year-on-year in November) helped the U.S. dollar stage a modest recovery in the morning trade. The dollar’s advance was limited by further decline in the U.S. National Federation of Independent Business (NFIB) Small Business Optimism Index1 (104.4 in December), but it was enough to soften the market sentiment towards emerging markets assets. Some of them, however, weakened due to idiosyncratic reasons - the Turkish lira’s decline followed reports of Turkish President Recep Tayyip Erdogan’s refusal to meet with U.S. National Security Advisor John Bolton in Ankara.



    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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