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  • Emerging Markets Debt Daily

    Brazil Pension Reform Regains Footing

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    July 05, 2019

    Brazil’s pension reform bill is now ready for the vote in the lower house. Philippine disinflation opens the door for a rate cut in August.

    After several last-minute delays, Brazil’s pension reform bill is moving to the lower house floor. It looks like the latest amendments had a minimal impact on the amount of fiscal savings, and Speaker of the House Rodrigo Maia aims to open the discussion on July 9. The timeline remains very tight, but there is at least a chance that reform can be approved before the summer recess. One issue that may potentially generate a lot of noise is the inclusion of states and municipalities. It was dropped from the main text at an earlier stage, but can still be voted on the floor as an amendment.

    A below-consensus inflation print in the Philippines opens the door for a policy rate cut in August. The central bank surprised the market by staying on hold in June. However, headline inflation (2.7% year-on-year in June) moved below the mid-point of the central bank’s target range (2-4%), while both core inflation and inflation expectations are easing. A slowing money supply and bank lending growth should provide additional reassurances that it is safe to lower the benchmark rate.

    Mexico’s latest gross fixed investments print looked “gross”, as yearly contraction deepened to -5.7% in April. Together with weakening consumer and business confidence, this sends a negative signal about the near-term growth outlook and supports the central bank’s dovish turn. The extent of policy easing, however, may also depend on the U.S. Federal Reserve, which the Banxico often shadows. Today’s strong labor market report in the U.S. raised a question of whether the market’s current dovish expectations are fully justified.


    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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