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  • Emerging Markets Debt Daily

    China “Green Shoots” Continue to Flourish

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    December 04, 2019

    This morning brought more signs of China’s cyclical rebound. The International Monetary Fund (IMF) signaled its willingness to talk about Argentina’s debt payments.

    China’s “green shoots” continue to accumulate. The Caixin services gauge (Purchasing Managers Index, PMI) exceeded consensus by a wide margin in November, accelerating from 51.1 to 53.5. We usually take such big moves with a grain of salt, but this one comes on the heels of stronger manufacturing gauges (both official and Caixin), as well as several alternative activity “sanity checks” (see chart below). China had been easing its monetary and fiscal policies for a while—and this stimulus should start showing up in the data. Importantly, the credit floodgates remain under strict control this time around so if cyclical acceleration is confirmed, chances are it takes places against a stronger structural backdrop.

    The IMF is signaling its willingness to talk about Argentina’s debt payments—provided the incoming administration does more work to reduce the country’s macro imbalances. Regarding the latter, we should get a better perspective on Friday, when President-elect Alberto Fernandez announces his new cabinet. The new government’s first test will come only a few days later, when it presents the 2020 budget bill. There are wide-spread expectations that social spending will go up (to the tune of ARS100B). Earlier communications indicate that the IMF should be okay with a looser fiscal stance in 2020 as long as there is a medium term framework for fiscal consolidation that follows a coherent set of macro assumptions.

    Predictably, Poland’s central bank kept its key rate unchanged at 1.5%. However, the rhetoric became more nuanced, reflecting a combination of the deteriorating growth outlook and higher inflation. The statement highlighted uncertainty about the impact of global factors (especially slowdown) on the economy—albeit the latest data points in the Eurozone give a glimmer of hope that the worst is behind us.

    Chart at a Glance: China “Green Shoots” Reflected in Alternative Activity Gauges

    China “Green Shoots” Reflected in Alternative Activity Gauges

    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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