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  • Emerging Markets Debt Daily

    Markets Cheer China's Cyclical Rebound

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    April 17, 2019

    China’s cyclical rebound sends risky assets higher. Argentina’s central bank is on the policy offensive following another disappointing inflation print.

    Risky assets responded well to the release of upbeat activity indicators in China. The biggest surprise was a sharp acceleration in the yearly industrial production growth (8.5% year-on-year, see chart below). A low base effect helped a lot, but the broad-based rebound also points to fundamental drivers (we give authorities the benefit of the doubt regarding the data quality). The recent jump in small companies’ surveys (Purchasing Managers' Indices) suggests that there may be positive structural changes as well. Today’s other releases (fixed assets investments, retail sales, property investments, and disposable income growth) sent similar signals about the near-term cyclical upturn. Given the circumstances, authorities may opt for a wait-and-see approach until they have a better idea of how the stimulus affects the real economy.

    Argentina’s latest inflation numbers looked bad. Both headline and core monthly increases were higher than expected, pushing the respective yearly growth rates to 54.7% and 55.5%, respectively. Inflation may start topping out in April-May, but not before getting closer to 60%. There is also a high probability that year-end inflation will stay above 40% (it remains to be seen whether the government’s price freeze on 60 food products will help to push it much lower). On a more positive note, the central bank’s response was quick and fairly orthodox. The bands of the currency’s non-intervention zone will now stay unchanged until the end of the year (nudging the peso away from depreciation). The peso will also be allowed to appreciate through the lower band. The flipside is that there will be more downside risks to growth, which may affect President Mauricio Macri’s chances of getting re-elected later this year.

    The Turkish lira rallied this morning as reports seem to confirm the opposition candidate’s victory in Istanbul’s mayoral elections. According to local press, the ruling AK party’s objections to the vote recount were rejected and the opposition candidate will receive his mandate from the provincial election board later today. Turkey’s macro backdrop remains extremely challenging, but if the reports are confirmed, easing political tensions may provide some breathing space for local assets.


    Chart at a Glance

    China Industrial Production Growth

    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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