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  • Emerging Markets Debt Daily

    China: Focus on Financial Stability

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    June 12, 2019

    A very moderate increase in China’s credit and monetary aggregates in May shows that domestic activity continues to face headwinds. However, it also suggests that financial stability remains an ongoing concern despite softening gross domestic product growth. The release echoes the modest scope of other stimulus measures announced in the past week or so, including lifting some restrictions on local governments’ infrastructure initiatives. A shift towards shorter-term lending indicates that the escalation of trade tensions affected sentiment. So, one thing we keep our eyes on are potential tweaks to the current policy mix that may include not just lower interest rates but also a weaker renminbi.

    A surprising pre-election maneuver by Argentina’s governing coalition sent local assets on a massive rally. President Mauricio Macri’s choice of moderate Peronist Miguel Angel Pichetto as his running mate “killed” several birds at once. First, it widened Macri’s electoral base. Second, it should allow the ruling coalition to keep the province of Buenos Aires. Third, it sent an unequivocal signal that the Peronist movement is more fragmented than was expected. All in all, this was a smart move that should help to reduce the impact of the opposition’s Fernandez-Fernandez ticket.

    Turkey left its policy rate on hold today (at 24%), in line with expectations. However, the statement dropped another hawkish reference—to maintain tight monetary policy until a significant improvement in inflation dynamics—and the section that talks about risks to price stability was watered down. So, it looks like the central bank is preparing for a rate cut—with the below-consensus inflation print in the U.S. providing a helpful external backdrop. Geopolitical considerations and the currency movements would be the usual risks under this scenario.


    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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