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  • Emerging Markets Debt Daily

    Emerging Markets Growth Under Review

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

    Activity surveys have softened in most emerging economies. However, China’s Caixin future output and new export orders indices are sending a positive signal. India’s new budget proposal disappointed, with markets concerned about the rise of populism in the run up to the general elections.

    The Chinese renminbi is under pressure this morning following the release of the weak Caixin activity survey, which showed a sharper than expected contraction in January (48.3 - see chart below), echoing a similar move in the official Purchasing Managers’ Index (PMI) for small companies. However, the future output and the new export orders indices1 were above the 50.0 threshold and rising, which is a good signal for future recovery in the manufacturing sector. Elsewhere in emerging markets, most manufacturing PMIs weakened in January, with few notable exceptions – India, Hungary (the central bank must be paying close attention), and Brazil (December’s industrial production weakness is already in the past).

    India’s budget proposal for the financial year 2020 disappointed, showing a higher than expected deficit target of 3.4% of gross domestic product. The reasons are obvious – populism and fiscal loosening in the run up to the general elections. An extra complication is that assumptions for revenue collection look ambitious (including higher goods and services tax receipts and one-offs), while the gross market borrowing estimate is higher than expected. All in all, this means more pressure on local rates and more policy challenges for the central bank.

    There’s a Goldilocks2 feeling in the U.S. this morning. On the one hand, there are super-sized non-farm payrolls (304K in January) and higher than expected ISM manufacturing and new order indices (56.6 and 58.2, respectively). On the other hand, there is the ongoing decline in the ISM prices paid index and “cooler” average hourly earnings (3.2%). The “growth is fine but there is no inflation” narrative is well reflected in market expectations for the Federal Reserve, with no rate hikes as far as the eye can see.


    Chart at a Glance

    Caixin China Manufacturing PMI

    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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