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  • Emerging Markets Debt Daily

    Focus on Global Growth after China’s Trade Data

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    March 08, 2019
     

    China’s exports weakness looks exaggerated, but it fits into the global slowdown narrative. Hungary’s rising inflation supports the market expectation of policy tightening.

    China’s February trade stats raised a lot of questions this morning—especially a 20.7% year-on-year drop in exports
    , which pushed the monthly trade surplus way below expectations (to USD4.12B). First and foremost, the February trade hiccups happen on a regular basis due to the timing of the Chinese New Year, which is why looking at moving averages makes more sense. The 3-month moving average that we use in the chart below shows that both exports and imports are indeed softening, with exports’ deceleration resembling the 2014-2015 episode and stoking concerns about weakening global demand (in addition to uncertainty surrounding the U.S.-China trade talks). Imports, however, are expected to rebound in the coming months, as past stimulus kicks in. Still, the big picture is that China’s external balance trajectory is changing, with the current account1deficits becoming a reality within the next couple of years (with the ensuing implications for the renminbi). By the way, it appears that the disappointing trade numbers had nothing to do with today’s dismal equity performance, which was driven by a different set of factors.  

    Hungary’s February inflation sent another “tighten!” signal to the central bank. Yearly headline inflation accelerated more than expected to 3.1% and core inflation rose to 3.5%. Hungary’s domestic activity also remains strong, fueling expectations that the central bank (NBH) would hike its policy rate by 79bps in the next 12 months. The outlook for the NBH’s next meeting on March 26 is getting more interesting, with many observers expecting to see some tightening of monetary conditions (like raising the deposit rate or adjusting the volume of FX swaps).  

    February’s labor market report in the U.S. was a bit unusual (stagflationary?). On the one hand, the non-farm payrolls were significantly lower than expected (20K vs. 180K expected). At the same time, the average hourly earnings growth reached the post-crisis high of 3.4% year-on-year, while the underemployment rate dropped to a level last seen in 2001! The market reaction was muted, as many (including Whihte House Economic Advisor Lawrence Kudlow) preferred to treat today’s release as a “fluke” that has no discernible impact on the Federal Reserve's policies.  

    Chart at a Glance

    China Foreign Trade

    Source: VanEck; Bloomberg LP

    1Current account is a record of a country’s transactions with the rest of the world, based on its net trade in goods and services, net earnings on cross-border investments, and net transfer payments.
  • 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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