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  • Emerging Markets Debt Daily

    China Numbers Soothe Market “Worriers”

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

    A stronger than expected Chinese yuan fixing and okay trade numbers propped up market sentiment this morning. The Philippine central bank joined the rate cutting brigade this morning.

    We are happy to report that the sky is not falling this morning. China’s numbers—a stronger than expected yuan daily fixing and okay trade data—are partly to “blame”. Regarding the currency, we maintain that fundamentals argue for the weaker yuan, but China’s central bank has a habit of punishing market participants who become too arrogant. Regarding foreign trade, July’s rebound reflected some one-offs, such as pre-tariff frontloading. However, stronger commodity imports is an encouraging signal for domestic demand. July’s activity indicators—out next week—should provide more color on the latter.

    The Philippine central bank (BSP) joined the rate cutting brigade this morning. The BSP lowered the policy rate by 25bps, but this was not in response to a weaker than expected Q2 gross domestic product growth. Unlike India and Thailand yesterday, the BSP put more emphasis on global growth and trade tensions. Still, monetary authorities keep a close eye on domestic growth headwinds—especially softer capital expenditures. Together with lower inflation pressures, this leaves room for more policy easing in the rest of the year.

    Mexico’s core inflation remains sticky, but moderating headline inflation gives the central bank an excuse to start easing. Yearly headline inflation eased from 3.95% to 3.78% in July, moving further away from the upper inflation target range. The central bank is getting increasingly willing to overlook core price pressures to address weakening domestic demand—so the August policy rate cut is not outside the realm of possibility.


    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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