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  • Emerging Markets Debt Daily

    Rating Agencies Getting Fed Up With Mexico

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    January 30, 2019

    Fitch Rating’s double-notch downgrade of Mexico’s state-owned oil company sparked concerns that sovereign rating is next in line. The Turkish central bank’s quarterly inflation report looked credible, albeit there are the usual concerns about fiscal stimulus and political pressures to cut rates prematurely.

    The Mexican peso is feeling the effect of yesterday’s double-notch downgrade of the state-owned oil company, Pemex, by Fitch Ratings. The currency slipped by 104bps vs. U.S. dollar (as of 9:20 a.m. ET, according to Bloomberg LP) due to concerns about potential implications for the sovereign (which is also on negative outlook by Fitch). A key issue here is that plans to save Pemex would have to be financed from the state budget, which already appears to be on weaker footing due to softer than expected domestic activity. The preliminary Q4 gross domestic product (GDP) print released this morning surprised to the downside, moderating from 2.5% to 1.8% year-on-year (see chart below).

    The latest quarterly inflation report presented the Turkish central bank (CBRT) in a fairly good light. The CBRT kept its hawkish tone, targeting a “convincing improvement” in the price dynamics. The central bank’s new lower inflation projections also look measured. The currency liked the outcome, staging a small rally in the morning trade. A key risk at this stage is the government’s reliance on fiscal spigot to boost the ruling party’s popularity (and economic growth) in the run up to local elections. The renewed pressure from President Recep Tayyip Erdogan to lower the policy rate is another potential complication.

    Press reports that an outspoken proponent of Venezuela’s radical debt restructuring, Ricardo Hausmann, is advising the country’s designated president, Juan Guaido, soured sentiment in the bond market this morning. Meanwhile, the U.S. administration made another move to boost Guaido’s position, giving him authority over Venezuela’s U.S.-based sovereign bank accounts.


    Chart at a Glance

    Mexico GDP

    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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