Natalia Gurushina, Economist, Emerging Markets Fixed Income
January 22, 2020
Russia’s new cabinet is in place, and the lineup confirms our initial belief that it will be tasked with lifting Russia’s growth trajectory, and that national projects will be a big part of it. Russia’s stellar fiscal performance will probably deteriorate in the process. But we do not think we should be alarmed. First, Russiahad been running fiscal surpluses for a while now and can afford some counter-cyclical policies. Second, Russia’s fiscal gate-keeper, Minister of Finance Anton Siluanov, was reappointed. And third, Russia’s national wealth fund has accumulated a cool USD125.6bn (see chart below). Going forward, some of the money (in excess of 7% GDP in the fund’s liquid part) can potentially be spent on “strategic investment projects”.
South Africa inflation edged higher in December (from 3.6% to 4% year-on-year), but this was expected due to less favorable base effects. What is more important from the central bank’s point of view—especially in light of the recent unanimous rate cut—is that core inflation continued to moderate. The benign inflation outlook and downside risks to growth are the reasons why the market continues to see room for one more 25bps rate cut in the second half of the year.
South Africa is not the only emerging markets (EM) economy that decided to give an extra boost to growth with a surprising rate cut. Malaysia did exactly the same this morning, leading to a small rally in local rates. Malaysia’s Q3 GDP growth dipped below 4.5%, interrupting the nascent recovery. It looks like high-frequency data was not going in the right direction either—hence today’s pre-emptive move.
Chart at a Glance
Source: Bloomberg LP
IMPORTANT DEFINITIONS & DISCLOSURES
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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