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  • Emerging Markets Debt Daily

    Turkey Confidence Still On Shaky Ground

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    July 23, 2019

    The post-election policy uncertainty continues to weigh on Turkey’s consumer sentiment. The Internatinoal Monetary Fund (IMF) sees additional weakness in the global growth outlook.

    Turkey’s consumer confidence is struggling to recover
    after it took another fall during the municipal elections kerfuffle. The index fell to 56.5 in July, which is the lowest level since the series began in 2012 – in part due to policy uncertainty. Regarding the latter, we are going to get some answers on Thursday during the central bank’s rate-setting meeting. The consensus now expects 250 basis points (bps) of easing – incidentally, reports in the local press suggest that the previous central bank chairman was booted over his objections to a 300bps rate cut.

    The IMF’s updated growth projections are out, and the verdict is that global growth remains “sluggish” with risks mainly to the downside – in part due to trade tensions and policy missteps. What is interesting, however, is that the 2019 outlook for developed economies brightened up compared to the April forecast – especially in the U.S., where the real gross domestic prodcut (GDP) growth was lifted by 0.3% to 2.6%. Growth in emerging markets, however, is now expected to slow more than expected (down by 0.3% to 4.1% in 2010), with Latin America being the weakest growth link (mere 0.6% in 2019).   

    The market expectations for policy rate cuts in Brazil are going “ballistic” these days, with steady progress on the pension reform front and moderating inflation fueling investors’ optimism. A total of 105bps of cuts is currently priced in for the next three rate-setting meetings (see chart below), and today’s below-consensus inflation print (mid-month inflation moderated from 3.84% to 3.27% year-on-year) provides a sympathetic macro backdrop.

    Chart at a Glance: Market Expectations for Brazil Policy Rate

    Rate Setting Meetings Projection

    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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