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  • Emerging Markets Debt Daily

    Hungary Ready for a Rate Hike

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    February 25, 2019
    Hungary’s central bank is readying for a rate hike. Mexico’s disappointing activity flow continued this morning.

    There seems to be a lot of movement on the Central European monetary policy sceneHungary has opted for keeping its policy rate on hold this morning (0.9%, as expected), but the statement sounded hawkish enough (“ready for gradual, cautious normalization”) to suggest that the central bank maygo for a hike as early as March. In Poland, the market seems reluctant to start pricing in policy tightening in 2019 despite a bigger than expected pre-election fiscal stimulus and the ensuing hawkish comments from some central bank board members. Still, the sheer size of the proposed package (1.3-1.8% of gross domestic product) and the fact that it is very consumption-centric may become a game-changer down the road.
    This morning brought another disappointing activity print in Mexico. December’s retail sales surprised massively to the downside, falling by 1.3% year-on-year. The consensus had already cut Mexico’s 2019 growth forecast from 2.3% in September to 1.8%, and further downgrades cannot be excluded if the dataflow remains that weak. The market continues to give Mexican assets the benefit of the doubt. However, local policies are becoming increasingly heterodox (check yesterday’s out-of-the-blue announcement about re-imposing steel and textile tariffs that expired in January), and this increases the risk of Mexico having its “Turkey” moment in the coming months.

     big upside surprise in the U.S. consumer confidence caught the market’s attention this morning. The Conference Board Consumer Confidence Indexjumped from 121.7 in January to 131.4 in February, reflecting the end of the government shutdown and the stock market rally. The market’s reaction, however, was muted as investors switched their attention to the testimony of Federal Reserve Chairman Jerome Powell before the Senate. 

    1The Conference Board Consumer Confidence Index measures the degree of optimism on the U.S. economy that consumers are expressing through their saving and spending activity.

    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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