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  • Emerging Markets Debt Daily

    China—Focus on Quality of Growth

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    August 14, 2019

    China’s growth moderation in July reflected deliberate policy moves, and not just the trade war flare-up. Argentina’s presidential front runner sent a bunch of encouraging signals, while President Mauricio Macri opened a way for a more orderly transition of power.

    The delayed escalation of U.S. tariffs on China provided some relief for the market yesterday afternoon. However, China’s below-consensus activity indicators added to concerns about the growth outlook. The trade war flare-up, as well as structural setbacks (lower private investments), explain a big part of July’s slowdown. But some developments suggest that authorities continue to target the quality of growth, despite headwinds. These include: (1) another round of tightening measures in real estate; and (2) de-risking of regional banks and local governments.

    Argentine newswires brought some encouraging signals from the presidential front runner Alberto Fernández, who said that he would be against currency controls and a protectionist agenda if elected in October. He also suggested that another presidential candidate, Roberto Lavagna (who at least understands the need for balancing the country’s accounts), might become Minister of Economy in his cabinet. In addition, this morning President Macri finally took responsibility for his loss, blaming his own government’s poor policy and saying that he would reach out to the other candidates, opening the way for a more orderly transition of power. So, the onslaught of outright negative news might be over for now.

    The lukewarm industrial production and gross domestic product (GDP) data in the Eurozone raised a yellow flag for Central European economies, which have already started to decelerate, according to the preliminary Q2 GDP numbers released this morning. Even though the yearly growth rates look higher than in many emerging markets peers, the trend has reversed, encouraging the markets to start pricing in policy rate cuts.


    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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