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  • Emerging Markets Debt Daily

    Mixed Reaction to Argentina’s Economic Plan

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    April 18, 2019

    Argentina’s price-freeze and other social measures received a mixed reaction. Confusion about the international reserves’ accounting in Turkey soured market sentiment.

    The policy direction in Argentina and Brazil remains center-stage. The delay in the lower house committee vote on the pension bill in Brazil was not completely unexpected. However, the market is concerned that centrist parties’ demands to change the text of the law might water down the legislation and its fiscal impact. In Argentina, the government’s plan to freeze domestic prices on a wide range of goods and services saw very different interpretations. Some argued that this was done mostly to control inflation (not the most orthodox move), whereas others pointed to a legitimate increase in social support for the poorest citizens who bear the costs of the macro adjustment (which is allowed under the current International Monetary Fund program)—albeit there are nagging concerns about the eventual fiscal costs.

    The Turkish lira was overwhelmed this morning by the sheer number of moving parts on the political, policy, and economic fronts. A lack of clarity in the international reserves’ accounting remains a main issue. On the one hand, authorities acknowledged that short-term currency swaps with local lenders were included in the total. However, this does not explain all changes in the reserves, and many commentators believe that the central bank uses its off-balance sheet forward book to mask the extent of currency interventions. The municipal election story in Istanbul also refuses to fade away—yesterday’s encouraging news that the opposition candidate was declared the mayor were followed by reports about next week’s election board ruling on election fraud.

    A nice pickup in U.S. retail sales and continuing decline in the initial jobless claims provided a much needed boost for the global green shoots narrative after the release of disappointing European Purchasing Managers' Indices (PMIs). Even though upbeat retail sales were followed by the underwhelming Markit survey for the U.S. (with its unexpectedly big decline in the services PMI), the market appears to be willing to look past it for now (at least, according to the U.S. dollar’s reaction).


    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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