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  • Emerging Markets Debt Daily

    China – Seasonality Strikes Again

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    January 06, 2020

    China’s seasonality affected the latest activity gauges, but 3-month moving averages continue to show a cyclical bounce. Reports about the untimely demise of Argentina’s Council of Advisors introduced an additional element of uncertainty in the upcoming debt talks.

    China’s seasonality—with big events like Chinese New Year, Singles’ Day—often has an “oversized” effect on monthly data prints. The latest non-manufacturing Caixin PMI (Purchasing Managers’ Index) is a case in point. After surging to 53.5 in November, on the back of strong Singles’ Day sales, it fell short of expectations in December, moderating to 52.5. These seasonal swings are a key reason why we prefer to focus on moving averages—the Caixin services PMI’s 3-month moving average showed that recovery continued in December (see chart below). While the dynamics are encouraging, the PMI’s level indicates that it is too early to talk about withdrawing policy support—especially for private companies. So, we expect to see more of it in the coming months.

    Reports about the untimely demise of Argentina’s Council of Advisors introduced an additional element of uncertainty in the forthcoming debt negotiations. What’s at stake is the size of any potential haircut, and today’s reports made it sound as if Minister of Economy Martin Guzman is aiming for a tougher proposal. We’ll see. What is encouraging for now is that authorities secured a sizable amount of money to continue servicing the foreign debt while talking to investors. Further, Production Minister Matias Kulfas said that strict currency regulations are here to stay, which puts the central bank in a better position to safeguard the international reserves.

    The Iran escalation fears continue to rattle global markets, but better than expected activity gauges in the Eurozone are feeding broad expectations for a weaker U.S. dollar and a “goldilocks” scenario for emerging markets. The upside revision of December’s PMIs and a big jump in January’s investor confidence indicator signal that the growth tide in the region might be turning. EMEA (Europe, the Middle East and Africa) economies would be the first to benefit from the improved growth outlook. But this prospect, however, might give a shot of confidence to local monetary policy hawks—Poland’s rate-setting meeting later this week will be an interesting test case.

    Chart at a Glance: China Activity Gauges – Focus On Trends Not On Monthly Volatility!
    Chart at a Glance: China Activity Gauges – Focus On Trends Not On Monthly Volatility!

    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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