Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
June 08, 2020
China’s May trade numbers are not indicative either of domestic collapse or external demand’s revival. China suspended debt payments for 77 poorest nations.
China’s foreign trade numbers for May – especially weaker than expected imports (see chart below) – raised concerns about domestic recovery. However, the situation is more nuanced than it seems. First, imports’ volume moderated vs. April, but this was not even close to the contraction of value, which was driven by lower energy prices. In fact, the volume of petroleum imports was up in May, leading to comments about stockpiling. So, the pace of recovery remains sluggish – hence the need for on-going policy support – but this is not a relapse. Now, as regards stronger than expected exports – this is not an indication that external headwinds suddenly evaporated. May’s exports were boosted by medical supplies, but the overall new export orders remain weak, posing downside risks for 2020 GDP growth.
The latest reports suggest that China suspended debt payments for 77 poorest countries, in line with the G20 initiative. The G20 plan calls for the suspension of debt payments until the end of the year, while still preserving the net present value of claims. There are currently no plans to extend debt relief further, but a lot will depend on countries’ ability to reopen and recover after the crisis. Several governments that are supposed to benefit from the program criticized it for covering only official bi-lateral debt.
We’ve got some mixed news from Argentina over the weekend. On one hand, Economy Minister Guzman confirmed that the government is working on an amended debt offer (hopefully to be presented before the deadline on June 12). On the other hand, the province of Mendoza’s debt restructuring proposal was met with disapproval because it did not recognize past due interest. Mendoza’s offer expires on June 16, but the chances that debt holders will accept it are slim.
Chart at a Glance:China Surging Trade Surplus – Interpret with Caution
Source: Bloomberg LP
IMPORTANT DEFINITIONS & DISCLOSURES
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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