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  • Emerging Markets Debt Daily

    Energy Issues Hit South African Rand

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    February 11, 2019

    Concerns about power cuts in South Africa and Moody’s negative comments about energy giant Eskom hit the rand in the morning trade. Mexico’s activity dataflow continued to disappoint, as the market ponders how far the government will go to support the national oil company, Pemex.

    The South African rand is underperforming today, following reports about escalating power cuts and Moody’s negative comments about the state-owned energy giant, Eskom. The rating agency is concerned that the government’s plan is unlikely to resolve the company’s debt issues and that it poses a threat to the sovereign’s fiscal health. One immediate concern is that power cuts will further undermine this year’s already weak growth outlook, exacerbating the risk of fiscal slippage.

    Mexico’s activity data flow disappointed once again, with industrial production falling more than expected in December (-2.46% year-on-year in seasonally adjusted terms). This is the weakest reading since the global financial crisis (see chart below), and it raises questions about the viability of the new administration’s reform agenda, especially in the oil sector (which is already a major drag on industrial growth). Today’s reports that private energy companies may be required to “voluntarily” restructure contract terms and limit energy price increases raised additional concerns about the country’s general policy direction.

    Russia scored another victory on the rating front after the market close on Friday. The sovereign’s rating was upgraded by Moody’s to Baa3, bringing it back to investment grade (IG) territory. The move means that Russia is now rated IG by all three agencies (Moody’s, S&P, and Fitch). Moody’s upgrade came despite the “reasonably high likelihood” of further U.S. sanctions, and it reflects the positive impact of past policies on the country’s balance sheet.


    Chart at a Glance

    Mexico Industrial Production

    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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