Emerging Markets Debt Daily
China Growth – Rebounds, Revisions, QuestionsNatalia Gurushina, Chief Economist, Emerging Markets Fixed Income StrategyJanuary 19, 2021
The uneven nature of China’s recovery indicates that the stimulus withdrawal will be gradual. The Russian sanctions risk is staging a comeback.
The market is still digesting China’s Q4 activity numbers. A better than expected headline GDP growth, coupled with the persisting gap between the supply (industrial production) and demand (retail sales) sides - plus a bunch of data revisions - gave rise to numerous discussions about the nature of China’s rebound. These ranged from “one cannot trust China’s data” to “wow, China actually managed to use the pandemic to its advantage and boost its global manufacturing share”. The uneven nature of the recovery is one good reason why policy normalization is likely to be gradual and sector-specific. There is a good chance that targeted measures to support small privately-owned enterprises will be extended again, whereas developers might find themselves in tighter circumstances.
This is going to be an interesting (and busy) week in the Emerging Markets (EM) monetary policy space. Four major central banks will have their rate-setting meetings – Turkey, Brazil, Indonesia, and Malaysia. The consensus view is that all four will stay on hold. Some observers, however, believe that Asian central banks might cut to support growth amidst low inflation pressures. By contrast, policy statement in Brazil and Turkey are expected to be hawkish. Brazil is widely expected to drop its “low for longer” forward guidance. The Turkish central bank should go out of its way to send a credible message – President Tayyip Erdogan’s comments last week about rates and inflation suggest that the policy U-turn is still on shaky ground.
The Russian sanctions risk is rearing its ugly head once again, following the return of a leading opposition politician, Alexey Navalny, from Germany to Moscow, and his prompt detention upon arrival. We suspect that this latest geopolitical twist will further limit the central bank’s ability to ease – even if inflation pressures prove temporary and the growth outlook remains soft.
IMPORTANT DEFINITIONS & DISCLOSURES
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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