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    Argentina’s New Policies – So Far So Good

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    December 16, 2019

    Argentina’s new economic measures were not as extreme as initially feared. China’s activities rebounded in November.

    The first set of economic measures unveiled by Argentina’s new administration looked surprisingly modest—and positive for sovereign USD bonds. The government wants to increase export taxes on agricultural products, raise severance payments, wages, pensions and social payments—but by a smaller than expected amount (= cyclical recovery via consumption, but with awareness about potential inflationary consequences). Another structural twist that we liked is that the government decided not to freeze utility tariffs for now. One important piece of legislation to keep an eye on is the “solidarity” bill (tax cuts and fiscal emergency powers)—it should be sent to the congress later today.

    China continues to work its way out of the domestic activity slump (see chart below). November’s data dump brought several upside surprises, including retail sales (up 8% year-on-year) and industrial production (up 6.2% year-on-year). Fixed assets investments were stable and private investments edged up a bit. The data most likely reflect the impact of past easing measures, but the monthly data can be noisy and we think it is too early to argue against the continuation of the “drip” stimulus.

    Russia’s surprisingly weak industrial production (IP) print raised quite a few eyebrows this morning. The IP growth dropped to a mere 0.3% year-on-year in November, undershooting consensus by a wide margin. The moving averages (3-month and 6-month) also indicate that Russia’s growth recovery remains fragile and requires additional policy support. An easier monetary stance is one option, but the government’s “national projects” are moving center stage—many analysts are getting more optimistic about their ability to boost growth, but the implementation risks are not to be dismissed lightly.

    Chart at a Glance: More Signs that China Activity Is Bottoming Out

    China Value Added of Industry

    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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