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  • Emerging Markets Debt Daily

    China: Private Green Shoots Just Got “Greener”

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    November 01, 2019

    China’s private sector activity gauge continued to strengthen in October. Brazil’s industrial production remains soft, fully justifying the government’s push for pro-growth reforms.

    China’s activity gauge that focuses more on private and smaller companies—the Caixin manufacturing PMI (Purchasing Managers' Index)—looked more promising than yesterday’s official print. It accelerated above consensus in October (to 51.7), extending the upward trajectory and widening the gap with the official PMI that focuses more on larger state-owned enterprises. China will continue to face major growth headwinds in the coming months (the structural nature of conflict with the U.S., global growth uncertainty). However, the fact that China’s private sector “green shoots” got a bit “greener” is an encouraging sign. Still, private companies should get more policy support (and this includes structural changes) to become China’s growth engine in the longer term.

    Brazil’s latest industrial production (IP) print shows that the government’s push towards pro-growth structural reforms is fully justified. Even though the yearly IP growth rebounded in September, the growth rate of 1.1% was on the “measly” side. We, therefore, find it encouraging that the government’s pro-growth agenda is getting advanced—despite political resistance. Administrative reform is a priority, with the government finalizing its calculations at this very moment.

    We’ve got a pretty good U.S. labor report this morning. The above-consensus non-farm payrolls, a higher participation rate (especially in the prime-age cohort) and a moderate hourly earnings growth point to a “Goldilocks” scenario, which would be consistent with the Federal Reserve’s taking a pause in its rate-cutting cycle—but without jeopardizing emerging markets central banks’ ability to ease more if necessary.

    À propos: I got “wired” to Twitter yesterday (don’t ask...), where I learned that the day of my digital “surrender” was actually quite remarkable. Apparently, it was the last day that we could refer to Ridley Scott’s beloved sci-fi classic Blade Runner as “a movie that’s set in the future.” Wow. The future caught up with us really fast. So, here are some thoughts. (A) Where is my flying car? (B) Could it be that developed market central bankers are actually replicants with implanted memories who should be tested for normal human reactions (such as, if something is not working—again and again and yet again—maybe you should try something else)? And, (C) Harrison Ford is still the best! My Twitter moniker is @NGurushina—stay tuned for “grains of wisdom,” (once I get through compliance).


    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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