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  • Emerging Markets Debt Daily

    Brazil Sells Reserves. Why?

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    August 21, 2019

    A sale of international reserves in Brazil might be a precursor to the reduction of gross public debt. South Africa’s downside inflation surprise leaves some room for rate cuts (but not too much).

    Brazil’s decision to sell up to USD3.8B of its international reserves looks unusual in the world where authorities are mostly preoccupied with boosting their hard currency war chests. The central bank cited a different nature of demand for U.S. Dollars as the main reason. We would also add that the sale looks in line with Minister of Economy Paulo Guedes’ stated intention to use the reserves in order to reduce the gross public sector debt, which surged to nearly 80% of gross domestic product (GDP) in the past few years. Stay tuned!

    A big question in South Africa this morning is whether the central bank will follow up with more rate cuts after July’s sizable downside inflation surprise. Both core and headline prices undershot consensus last month, easing to respective 4.2% and 4.0% year-on-year. The global environment and weak domestic activity are good arguments in favor of more easing. However, the central bank’s actual wiggle room might be limited by fiscal slippages and a possible rating downgrade by Moody’s. 

    Signs of Mexico’s stagnation are multiplying, and this might pave the way for more monetary easing in the coming months. Today’s negative surprise came from retails sales, which expanded by mere 1% on year-on-year basis in June. The ongoing weakness of consumption and investments is a major headwind for real GDP growth, albeit the acceleration of government spending (announced earlier this month) will provide some relief. 


    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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