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  • Emerging Markets Debt Daily

    China Credit Impulse - Holding Steady

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    January 16, 2020

    China’s credit impulse remained steady in December. South Africa surprised with a 25bps rate cut.

    The Phase 1 trade deal between the U.S. and China is—thankfully—behind us. It was limited in scope, but eliminated a major tail risk for sentiment. We can now go back to fundamentals, like China’s December credit aggregates. The main takeaway is that the credit impulse remains steady and growth-supportive. A big upside surprise in total social financing was due to a change in methodology—the adjusted numbers show a less dramatic jump. New yuan loans moderated a bit more than expected—another signal that authorities are not flooding the system with credit. Official shadow lending was down in December, but alternative sources (China Beige Book) show signs of revival—a bit disappointing structurally, but a bit more pro-growth. 

    We had to make an exception to our general rule not to bundle together different countries—rate-setting decisions in South Africa and Turkey were equally important (+ there were big developments elsewhere in the world). South Africa surprised with a unanimous 25bps rate cut. A combination of well-behaved inflation and a dismal growth outlook steered the board in the dovish direction. Turkey’s 75bps rate cut was expected. But the real policy rate is now negative, while inflation is accelerating and domestic activity is picking up. Hence concerns about macro imbalances and the quality of growth.  

    Following yesterday’s bombshell announcement, Russia’s commentary is shifting towards the new government’s mandate and its macroeconomic implications (larger social spending, smaller fiscal surpluses, perhaps inflation pressures). New Prime Minister Mikhail Mishustin was the head of the tax service and considered “bureaucratic Superman” (@Bershidsky). There is no question that he can deliver—boosting Russia’s growth through national projects could be an ideal area to test his super-powers. 

    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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