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  • Emerging Markets Debt Daily

    China Activity Surveys Soften Further

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    November 30, 2018

    China’s activity surveys softened in November and are expected to slide further in the next few months, before the past policy effects start kicking in. Turkey’s higher issuance plans overshadowed good news on trade balance adjustment.

    November offered no respite for China’s growth outlook. The official Purchasing Managers’ Indices (PMIs) surprised to the downside in both services and manufacturing, with the latter now bordering contraction territory (50.0, see chart below). Other sub-indices that showed deterioration included the small companies PMI (back in contraction territory) and the new orders PMI (barely expanding at 50.4). Today’s release was in line with the consensus expectation that China’s activity indicators will continue to deteriorate in the coming months, and that the positive effect of past simulative measures will not be visible until Q2 2019. Most commentators also expect to see a combination of further targeted easing by the central bank and some fiscal steps to relieve the growth pain.

    The good news about Turkey’s ongoing external adjustment was overshadowed by the Ministry of Finance and Treasury’s announcement about a larger than expected increase in domestic borrowing in December. Turkey’s trade deficit shrunk to a mere USD460M in October, the lowest since the global financial crisis. However, a higher borrowing target for December (TRY4.5B vs. TRY3.4B as previously announced) signals that the government may want to use fiscal stimulus to improve growth prospects (consensus currently sees recession in Q4 2018/Q2 2019). If this is the case, the speed of external adjustment (which is pretty much the only bright macro spot right now) may slow down, undermining the fundamental support for the currency.

    Brazil’s real gross domestic product (GDP) growth showed some improvement in Q3, firming to 1.3% year-on-year. However, it was still below consensus, underscoring the challenges faced by the government on the fiscal front. The consolidated government posted a slightly lower than expected primary surplus in October, while the overall deficit remained very high at 6.8% of GDP. As a result, the public sector’s net debt rose to 53.3% of GDP. All eyes are now on the new administration’s ability to implement social security reform. President-elect Jair Bolsonaro said yesterday that he will submit his proposal to the parliament early next year and that it will be different from the outgoing president’s plan.


    Chart at a Glance

    China Manufacturing PMI

    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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