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  • Emerging Markets Debt Daily

    Turkey Rout Intensifies

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    May 07, 2019

    Turkey’s assets were hit by the cancellation of Istanbul’s municipal elections results. Chinese authorities expressed concern about the sustainability of economic stabilization.

    Turkey does not cease to amuse with its policy/politics twists, including yesterday’s cancellation of the municipal elections results in Istanbul
    . The re-run is scheduled for June 23, and the main question right now is how the ruling party intends to achieve the desirable result. We can think about several “options” (keeping prices artificially low and the currency artificially stable, boosting fiscal spending), but these are hardly the optimal policy choices. Yesterday’s developments moved local assets a lot, and we suspect that the lira might have ended much weaker if it had not been for currency interventions. However, the ruling party’s attitude seems to be to stay the course.  

    The U.S.-China trade talks “yo-yo” continued overnight with some headlines pointing to a possible last-minute “fix”. With few days to go before the Friday deadline, we keep our eyes on the macro and policy newsflows. Regarding the latter, Premier Li Keqiang was quoted as saying that China’s economic stabilization is not yet solid, which helps to explain the central bank’s decision to go for another targeted reserve requirements cut yesterday. On the macro front, April’s international reserves brought no surprises (barely changed at USD3.094T), and the focus shifts to trade and inflation numbers to be released in the next few days.

    Argentina reported another disappointing industrial production print. The yearly decline was larger than expected in March (-13.4%), stalling the nascent recovery trend (see chart below). The volatile exchange rate and higher local interest rates—together with the uncertainty about the presidential election outcome—will weight on domestic activity in the coming months. One real risk is that it will create a negative feedback loop, reducing President Mauricio Macri’s chances of reelection.

    Chart at a Glance

    Argentina Industrial Production

    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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