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  • Emerging Markets Debt Daily

    Brazil External Balance – Still A Bright Spot

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    November 25, 2020

    Brazil’s textbook current account adjustment continued in October. South Africa’s central bank is unlikely to react to the upside inflation surprise. 

    Please note: Emerging Markets Debt Daily will not be published November 26-27. We look forward to resuming our daily updates on November 30.

    Brazil’s current account dynamics remain positive. The country posted a larger than expected surplus in October (USD1.473B)—a significant improvement from last year that reflects the COVID-related adjustments (such as imports contraction). The 12-month running current account deficit is now down to 1% of gross domestic product (GDP), and it is more than fully financed by foreign direct investments (around 3% of GDP). Brazil’s textbook reaction to external shocks is very reassuring. The next item on the policy agenda should be longer-lasting structural adjustment—and this includes an improved fiscal trajectory, higher public savings and a lower public debt.

    South Africa’s annual inflation unexpectedly spiked to 3.3% in October. A jump in food prices and post-lockdown price increases are the main culprits, and they may prove temporary. The October upside surprise notwithstanding, headline inflation remains at the bottom of the target range (3-6%), so we do not expect any policy response from the central bank for now.

    Argentina posted a smaller than expected trade surplus in October, which is a negative development against the backdrop of the (still) shrinking international reserves. One obvious issue is that export receipts remain below multi-year averages (see chart below) due to macro instability, a lack of credit and the confusing currency regime. Argentina is talking to the International Monetary Fund right now, but the likelihood of a program addressing these issues and promoting a credible reform agenda remains low.

    Chart at a Glance: Argentina Exports Remain Depressed

    Chart at a Glance: Argentina Exports Remain Depressed

    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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