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  • Emerging Markets Debt Daily

    Brazil Pension Reform: Lingering Suspense

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    October 23, 2019

    Brazil’s pension reform finale has one more vote this afternoon. Turkish assets rally on the back of a deal with Russia to create a Kurdish buffer zone in Syria.

    The last-minute pension reform hiccup spoiled the party in Brazil. Even though the senate approved the main text of the bill in the final vote (with a larger majority than necessary), there is a catch in the form of two amendments still to be voted on. The amendments are minor as regards their impact on fiscal savings, but—if things go wrong and they are approved—the bill might be sent back to the lower house. The risk is very small, but it is non-zero. The amendments should be voted on later today.

    Turkish assets continue to perform well this morning following an agreement with Russia to create a Kurdish buffer zone in northern Syria. The currency rally should bolster the expectation of a measured 100bps policy rate cut tomorrow. Authorities hope this will help to boost the growth outlook, which is still struggling despite occasional upside surprises. The latest consumer confidence print is a case in point. The confidence index edged higher in October, but remained close to multi-year lows—indicating that downside risks to the recovery process continue to persist.

    Sizable downside surprises in South Africa’s core and headline inflation can embolden the central bank doves. Core inflation fell to the lowest level since 2011 (see chart below), and headline inflation moderated to 4.1% year-on-year in September. The market sees room for one more rate cut in the next three months, as the economy is slowing amidst weak domestic demand and energy blackouts. However, uncertainties related to the sovereign rating and the restructuring of the state-owned utility Eskom and geopolitical risks might force the central bank to take a more cautious stance.

    Chart at a Glance: South Africa’s Inflation Risks Remain Muted

    South Africa’s Inflation Risks Remain Muted

    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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