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  • Emerging Markets Debt Daily

    Argentina Takes Steps to Calm Markets

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    August 15, 2019

    Argentina’s authorities and presidential elections front-runner are making more efforts to calm the market. Turkey’s July fiscal surplus was illusory.

    A more concerted effort to calm the market is underway in Argentina. It is too early to talk about the new cabinet’s composition, but potential candidates who were mentioned for important economic positions (Guillermo Nielsen for Minister of Finance and Matías Kulfas for the central bank governor) hold fairly balanced views. In the meantime, the short-term debt rollover and the dollarization of bank deposits are emerging as key near-term risks. The private sector’s rollover rate at the latest USD Lete auction was only 16.5% (the International Monetary Fund (IMF) program’s annual requirement is 50%)—the rest were bought by Argentina’s social security agency ANSES. About USD7.3B of these bonds mature between now and the end of the year.

    July’s fiscal surplus in Turkey sent hearts racing this morning, as it came on the heels of several big monthly shortfalls. Unfortunately, the surplus was purely “cosmetic,” reflecting a one-off transfer from the central bank’s precautionary “reserve fund” (a.k.a. undistributed profits). The government kept the fiscal spigot wide open in the run-up to this year’s municipal elections. As a result, the Bloomberg consensus now expects the budget gap to reach 3.65% of gross domestic product (GDP) in 2019. This might be good for near-term growth, but not necessarily for longer-term macro stability.

    This morning’s big data dump in the U.S. gave more credence to the “U.S. outperformance” narrative. Most releases—Empire State Manufacturing Index,July’s retail sales, Q2 productivity growth—surprised to the upside at decent levels. The sole exception was industrial production, which barely expanded on a year-on-year basis (0.48%). All in all, not enough arguments against additional policy easing in the U.S., but a few more fundamental factors in favor of the U.S. dollar.

    1The Empire State Manufacturing Index measures general business conditions in New York State.


    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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