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  • Emerging Markets Debt Daily

    Brazil Pension Reform Enters Final Stretch

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    July 11, 2019

    Brazil’s lower house approved the base text of the pension reform bill by a larger than expected margin. Turkey’s current account balance showed further improvement in May.

    Brazil is not yet out of the woods on pension reform, but things are definitely moving in the right direction
    . The fact that the base text of the bill was approved in the lower house by a much larger margin than expected (379 votes vs. the 308 necessary) is a positive signal. The next step is the floor vote on amendments. There will be a push to soften some requirements, diluting expected fiscal savings—but (hopefully) not dramatically. There is a chance that the second-round floor vote will take place next week (before the summer recess), even though tensions are still high.

    Turkey’s current account balance is one of the few bright spots in the economy. The monthly balance flipped back into surplus in May (USD0.15B), pushing the 12-month trailing balance closer to 0% of gross domestic product (GDP, see chart below). Weak domestic activity is the main driver behind the change, as it depresses imports (down by 19.3% year-on-year in May). However, the recent improvements in export dynamics may be an indication that the weaker currency started to boost competitiveness. Smaller current account deficits is good news for the central bank, which is slowly rebuilding its international reserves. We can only hope that this will not be undone by another bout of currency interventions.

    U.S. core inflation was a touch firmer than expected in June (2.1% year-on-year)—but not enough to make a difference for the Federal Reserve (Fed). The short-term inflation momentum accelerated, but it is still well below the previous peaks. Details also show that many of the factors that were behind the upside core inflation surprise may be transitory. Finally, additional inflation measures released by the regional Feds show no obvious signs of runaway price pressures. So, the market should continue to find solace in Fed Chair Jerome Powell’s dovish congressional testimony, with its strong signal about additional policy accommodation.

    Chart at a Glance

    Turkey Current Account Balance

    Source: 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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