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  • Emerging Markets Debt Daily

    China Policies Firmly in Focus

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    December 10, 2018

    China’s responses to the Huawei Technologies affair and soft domestic data flow remained firmly in focus this morning. News about the resignation of India’s Central Bank Governor and Turkey’s weak Q3 gross domestic product (GDP) growth soured the sentiment.

    The weekend brought an avalanche of China-related headlines, with authorities threatening further action over the arrest of Huawei Technologies’ CFO and the latest data releases (below-consensus November inflation and imports) pointing to soft growth momentum. Concerns that the trade war truce may be short-lived hit many risky assets, including the renminbi, which was trading 56bps weaker at 10:10am ET, according to Bloomberg. As regards to responses to soft domestic data, the dedication of an entire page in the December 9th issue of People’s Daily to supporting the private sector and financing for consumption may be a sign of a likely policy direction.

    Turkey is another economy where the market is zooming in on authorities’ reaction to weaker domestic activity. The real GDP growth undershot consensus by a wide margin in Q3, moderating to 1.6% year-on-year and heading towards the first recession after 2009. Concerns about potential policy responses are twofold: (1) the central bank may be forced to ease sooner than justified by the inflation dynamics; (2) the (over)use of fiscal stimulus may lead to a vicious cycle of higher inflation and interest rates. Local reports about a draft bill giving the president unlimited authority to transfer funds from the central government coffers to municipalities do not inspire confidence.

    The unexpected resignation of India’s central bank governor, Urjit Patel, sent the rupee and stocks lower in the morning trade. The market is clearly not “buying” the official version (personal reasons), focusing on perceived political pressure from the government instead. The development is unequivocally negative for the central bank’s credibility and independence, and this may continue to weigh on Indian assets for the time being.



    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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