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  • Emerging Markets Debt Daily

    Mexico’s Surprisingly Wide Trade Gap

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    February 26, 2019

    Mexico’s macro flow continues to deteriorate, with January’s trade deficit widening more than expected. Turkey’s economic confidence remains low, forcing the government to resort to more fiscal and quasi-fiscal stimulus.

    January’s trade balance print in Mexico looked alarming.
    The monthly deficit was the widest in 20 years (see chart below), exceeding the consensus forecast by a sizable margin and running against expectations that softening domestic activity should pave the way to (at least some) external adjustment. The government plans for state-owned oil company Pemex were also on everybody’s mind as the petroleum deficit continued to look painfully wide and oil exports declined further. The market was not particularly thrilled with the release, sending the peso 36bps weaker.

    Turkey’s economic confidence stayed deep in “pessimistic” territory in February, showing only marginal improvement over January. This dynamic does not bode well for the growth outlook, forcing the government to put on more stimulus—often in the form of quasi-fiscal spending through state-owned banks, but also through traditional fiscal channels (check primary deficit’s widening in January), as well as asking banks to sustain lending (this one was recently criticized by Moody’s).

    The macro flow in the U.S. remains mixed, reinforcing the “end of outperformance” narrative. New factory orders surprised to the downside once again in December, with year-on-year growth easing to 2.4%. December’s capital goods orders were also revised down. The real gross domestic product growth forecasts for Q4 produced by the regional Federal Reserve Banks look underwhelming, ranging from 1.8% (Atlanta) to 2.35% (New York), and the market continues to price in the first rate cut within two years.


    Chart at a Glance

    Mexico Trade Balance

    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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