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  • Emerging Markets Debt Daily

    China Activity Looks for Policy Support

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    December 14, 2018

    China’s activity suggests that additional policy support might still be required, albeit rebounding investments signal that past easing is having effect. Russia stays ahead of the curve with a pre-emptive rate hike.

    China’s retail sales and industrial production missed expectations in November, fueling concerns about global growth (with marginal help from the Eurozone’s barely-alive activity surveys) and pushing most risky assets into the red this morning. There were, however, some encouraging signals in today’s data dump. In particular, China’s fixed assets investments continued to recover for the third consecutive month (see chart below), suggesting that the past stimulus is having effect. The focus now shifts to authorities’ additional policy responses. Most commentators expect to see “more” easing – the Politburo meeting yesterday certainly encourages this line of thought. We suspect, however, that simply doing “more” of the same might not work. One telling example is that China’s financial conditions did not ease much despite recent RRR (required reserve ratio) cuts. In this regard, the annual Central Economic Work Conference (19-21 December) is the event to watch.

    It is common knowledge that Russia’s monetary and fiscal policies are exemplary, but the central bank’s decision to deliver a 25bps pre-emptive rate hike puts it on the road to sainthood. Even though Russia’s inflation is currently quite low, the central bank sees stronger pressures from January’s value added tax (VAT) hike and the weaker currency (the resumption of foreign exchange purchases will cap potential appreciation going forward). Monetary authorities are also concerned that new sanctions might potentially affect Russian banks. The statement was hawkish, leaving room for more tightening in the coming months if the aforementioned risks materialize.

    Argentina’s inflation delivered a nasty surprise accelerating to 48.5% year-on-year in November. Core inflation also climbed higher to 46.3% year-on-year. There are, however, some signs that inflation might be topping out, and the central bank’s over-delivering on the monetary policy front (base money growth) supports this outlook.


    Chart at a Glance

    China’s fixed assets investments continued to recover for the third consecutive month

    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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