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  • Emerging Markets Debt Daily

    Major Shifts in Venezuela Politics

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    January 14, 2019

    The latest political developments in Venezuela support expectations of political change. The downside macro surprises in Turkey and China keep markets focused on likely policy responses.

    Venezuela’s political scene attracted a lot of attention over the weekend, encouraging expectations of a regime change. The National Assembly’s president, Juan Guaido (who was briefly detained on Sunday) called for national protests and issued a three-step action plan that includes: (1) the ousting of President Nicolas Maduro, (2) the establishment of a transition government led by Guaido himself, and (3) new free and fair elections. Guaido seems to enjoy a lot of international support (or at least sympathy), with Brazil saying that it would recognize him as interim president.

    Signs that Turkey is sliding into recession at a faster than expected pace keep piling up. Industrial production contracted by 6.5% year-on-year in November, and the latest activity surveys paint a fairly bleak picture. A key macro risk is that the government would respond with more fiscal stimulus in the run up to the local elections, which can slow disinflation and external adjustment.

    Downside surprises abound in China’s December trade numbers. Both exports and imports undershot expectations, contracting by 4.4% and 7.6% year-on-year, respectively. The weakness of exports was most likely due to a combination of a high base effect and trade frontloading. It also raised additional concerns about global growth slowdown. The imports dynamics reflected both lower commodity prices and slowing domestic activity (weaker non-fuel imports). Regarding the latter, authorities have already lined up additional supporting measures, such as further tax cuts promised by the Ministry of Finance.



    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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