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  • Emerging Markets Debt Daily

    Steady Stream of Targeted Stimulus in China

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    January 09, 2019

    Chinese authorities announced additional targeted policy measures to support the economy. Brazil’s pension reform outlook appears brighter. Mexico’s inflation outlook remains uncertain.

    Signs of progress in U.S.-China trade talks and indications that the fourth plenum of the Communist Party’s central committee may finally take place later this month generated a lot of China-related buzz this morning (and a stronger renminbi). The key question is whether the plenum will be used to introduce major policy initiatives, as opposed to the somewhat piecemeal approach taken in 2018. While the markets are waiting for confirmation, authorities announced several new “drop irrigation” measures aimed at small companies (additional tax cuts effective for three years), and potential policies to support consumption of vehicles and home appliances. The central bank’s governor also mentioned the use of counter-cyclical policies to support the economy in general and private businesses in particular.

    Mexico’s inflation outlook continues to look unnerving. Core and headline inflation rebounded in December (to 4.83% and 3.68% year-on-year, respectively), with the latter remaining above the central bank’s target. This means extra policy challenges for the central bank in a situation when the country’s economic growth does not look particularly inspiring. At the moment, the market does not fully price in additional rate hikes – the Mexican peso’s recent strong run is one factor that helps to substantiate this view.

    Brazil’s pension reform pendulum has swung in a more optimistic direction. Yesterday’s remarks by Minister of Finance Paulo Guedes point to a deeper pension system overhaul that would include individual capitalization and stricter retirement conditions for teachers, firefighters, and police officers. The government is also proposing a shorter transition period (12 years vs. 21 years in President Michel Temer’s draft). The Minister of Finance suggested that the draft reform bill may be sent to the congress at the end of February’s recess.



    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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