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  • Emerging Markets Debt Daily

    China Still in Need of Policy Stimulus

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    April 30, 2019

    Softer activity surveys in China show that it is premature to talk about the stimulus withdrawal. Turkey’s central bank continued to send confusing policy messages.

    China’s Purchasing Managers' Indices (PMIs, both official and Caixin) moderated more than expected in April, signaling that it is premature to talk about the stimulus withdrawal. Many commentators mentioned a “payback” from a strong pickup in March, but the bottom line is that PMIs stayed in expansion territory, pointing to mild recovery. Our personal favorite on the structural front was the ongoing improvement in the small companies PMI, which now stands close to “graduating” into expansion territory (49.8) after many months of languishing below the 50.0 threshold.

    Turkey continues to send rather confusing policy messages. Just days after removing the hawkish bias from its statement, the central bank governor, Murat Cetinkaya, alluded to the possibility of restarting the tightening cycle if there are further downward pressures on the currency. Today’s “damage control” attempt did little for the lira though, which traded weaker vs. U.S. dollar at 10 a.m. ET (according to Bloomberg LP). The market was also disappointed by the fact that the quarterly inflation report (released this morning) did not provide any clarification on puzzling changes in the central bank’s net international reserves.

    The policy buzz in Central Europe is firmly on the hawkish side despite the deteriorating activity surveys. The biggest surprise of the day came from Poland, where yearly headline inflation overshot consensus by a very wide margin, accelerating from 1.7% to 2.2% in April (see chart below). The reaction from the central bank’s doves was predictable—“one-offs”, “let’s stay calm”, “will only respond to a trend”. The market tends to agree that there will be no sharp near-term policy adjustments, pricing in only 14bps of tightening in the next 12 months.

    Chart at a Glance

    Poland CPI

    Source: Bloomberg LP


    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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