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  • Emerging Markets Debt Daily

    China Domestic Demand Holding On

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    May 08, 2019

    China’s foreign trade numbers suggest that domestic demand is holding on well. In South Africa, the African National Congress's (ANC’s) margin of victory in the parliamentary election will send an important signal for reform.

    The market continued to look unsettled this morning, as investors devour every little morsel of information related to the U.S.-China trade deal. Meanwhile, China’s foreign trade numbers signal that domestic demand is holding on well. April’s imports growth surprised to the upside, rebounding to 4% year-on-year despite a higher base—in line with a strong bounce in the imports Purchasing Managers' Index (PMI, see chart below). Exports surprised to the downside—exports to the U.S. resumed weakening as well—however, the exports PMI bounced strongly in April. We remain hopeful, but the outcome of the trade talks will be key.

    South Africa is holding the parliamentary elections today. The ANC’s margin of victory will be important—in particular, whether the ANC’s share will fall below 60%. Another important signal is whether the radical Economic Freedom Fighters (EFF) party will be able to get a double-digit share of the vote. Both developments will be crucial for the direction of structural reform—including the fiscal trajectory and the central bank’s independence.

    The latest industrial activity print in Hungary sent a very hawkish signal. Yearly growth accelerated to 8% in March, getting close to the highs last seen in 2017. This is not the only macroeconomic variable that suggests that the central bank may be falling behind the curve. Hungary’s headline inflation jumped to 3.7% and core inflation to 3.8% year-on-year in March. The market believes that the central bank will be forced to hike its policy rate within three to six months, with almost three full hikes priced in for the next year.

    Chart at a Glance

    China Imports 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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