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  • Emerging Markets Debt Daily

    China Steps Up Monetary Stimulus

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    September 06, 2019

    Emerging markets central banks continue to provide more stimulus. China delivered the promised blanket cut in the reserve requirements for banks and Russia cut its key rate by 25bps.

    The big news in China this morning is a blanket 50bps cut in the reserve requirements (to 13%). The move was well telegraphed, so it was not a surprise. It shows that authorities are quite happy to modify their “drip” stimulus approach in order to minimize the impact of trade tensions on growth. The worsening growth outlook was one of the main reasons behind Fitch’s decision to lower Hong Kong’s sovereign rating from AA+ to AA – for the first time since 1995, and with a negative outlook (which leaves room for further downgrades). We are pretty sure that rating agencies also keep an eye on Hong Kong’s international reserves (given its currency board exchange rate regime). Reserves are still sizable (USD432.8B), but an unusually big drop in August (USD15.7B or ~3.5%) caught the market’s attention today.

    Emerging markets (EM) central banks are firmly in easing mode. Chile slashed its key rate by 50bps earlier this week, and Russia followed today with a 25bps cut, signaling more easing in the future (“key rate is at the top of the estimated neutral rate range”). Lower inflation—officials see it moderating to 3.6-3.8% by the end of the year—is fully consistent with dovish guidance. Lukewarm domestic activity—the central bank cut its gross domestic product (GDP) growth forecasts—points in the same direction.

    The U.S. dollar was not particularly happy about the U.S. labor market report, which showed lower than expected payroll numbers (down to 130K) and moderating hourly earnings (3.2% year-on-year). While the report does not look “recessionary”, it should nevertheless solidify the market expectation of another U.S. Federal Reserve rate cut this month.


    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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