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  • Emerging Markets Debt Daily

    China Trade – Room for Further Improvement

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    July 14, 2020

    China’s foreign trade beat expectations in May. Brazil’s disappointing domestic growth in May can pave the way for one more policy rate cut.

    A stronger than expected rebound in China’s foreign trade was one of the morning’s highlights. Both imports and exports surprised to the upside (see chart below), leading to comments about stronger domestic demand and weaker global headwinds. We tend to agree on domestic demand—albeit with one caveat. Stronger commodity imports (iron ore, unwrought copper and crude oil) are consistent with a rebound in manufacturing. So, we are still talking about a rebound that is driven more by the supply side (which is still a rebound). As regards exports, the recovery still looks narrow-based, with medical supplies at the forefront, so it is too early to dismiss concerns about global headwinds, especially if COVID’s second wave gains pace.

    Brazil’s weaker than expected May GDP growth points to a bumpy (and possibly longer) recovery ahead. Economic activity expanded by a mere 1.3% month-on-month, with services looking particularly weak due to social distancing requirements. As COVID-related restrictions are gradually lifted, we expect the recovery to be on firmer ground. In the meantime, the disappointing May print can pave the way for one more policy rate cut in August (especially as inflation pressures are pretty much non-existent at the moment).

    The Polish central bank (NBP) defended its dovish track record, but nevertheless stayed on hold at 0.1% today. The statement shows a lot of uncertainty about the macroeconomic projections and the pace of recovery, but we strongly suspect that the recent upside inflation surprises gave the NBP some food for thought. The NBP also reiterated concerns about a lack of a “visible” currency adjustments to the COVID-related shock, which might interfere with the recovery. Currency interventions, anyone?

    Chart at a Glance: China Foreign Trade – Rebound Looks More Real

    Chart at a Glance: China Foreign Trade – Rebound Looks More Real

    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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