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  • Emerging Markets Debt Daily

    Signs of Strain in Global Supply Chains

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    February 21, 2020

    South Korea’s early foreign trade data shows signs of virus-related disruptions in global supply chains. Brazil’s widening current account deficit worsens the macro backdrop for the currency.

    South Korea’s early foreign trade data was scrutinized this morning for signs of virus-related disruptions in global supply chains. The headline numbers looked okay—exports were up by 12.4% year-on-year and imports by 4.7% in the first 20 days of February. However, the pickup in exports was partly due to Lunar Year distortions and a low base effect, while daily average shipments were actually down by nearly 10%. Imports from China dropped by nearly 20% year-on-year, and some estimates show that Korea’s average daily imports from China collapsed to the lowest level since 2010. There was some evidence of trade re-routing (in particular to the U.S. and the EU—probably as a result of earlier precautionary steps), but details argue for more policy support (globally) in the coming weeks.

    As expected, Brazil’s current account widened in January (to US11.9B). And even though foreign direct investments surprised to the upside, it was not enough to fully cover the monthly current account gap. We have no serious concerns about Brazil’s external accounts. However, the widening current account deficit and the fact that low interest rates discourage portfolio inflows create a less supportive backdrop for the currency.

    Surprisingly strong February activity gauges in the Eurozone raised a question mark about the U.S. outperformance story this morning, as the Purchasing Managers Indices (PMI) in the U.S. were significantly weaker than expected. An important caveat—PMI details (longer delivery times, weaker export orders) show that the coronavirus can still be a drag in the coming months. Some sell-side analysts also pointed that the PMI methodology counts longer delivery times with a positive sign—i.e., as a sign of stronger growth rather than the virus-related supply chain disruptions, which might have led to “false positives” in Europe.

    Image of young musicians from Lithuania (Martynas Levickis on accordion) delivering the most amazing rendition of Astor Piazzolla’s The Four Seasons of Buenos Aires

    Source: Natalia Gurushina


    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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