Emerging Markets Debt Daily
EM FX – Who Is Afraid of Bidenomics?Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income StrategyJanuary 20, 2021
Judging by today’s price action – nobody. Emerging Markets (EM) currencies – including the sanctions-prone ruble – behaved well on the eve of President Biden’s inauguration. It would be interesting to see whether the Blue Wave trades in EM will be affected by the avalanche of executive orders expected in the coming hours and days. We keep our eyes on the main “prize” – real GDP growth. The 2021 consensus expectations in EM appear to be stalling, and even deteriorating in some regions (see chart below).Europe, the Middle East, and Africa (EMEA) currently looks like the weakest link in this regard – another wave of lockdowns in the Eurozone and the recent policy tightening in Turkey suggest that we might see further growth downgrades in the region. EM is not a monolith indeed.
One question we are grappling with is whether the “flatlining” growth projections and low inflation in many parts of EM are consistent with rising expectations of policy rate hikes. The list of countries where the market prices in at least 15bps of tightening in the next 12 months now includes Chile, Colombia, the Czech Republic, Russia, India, South Korea, the Philippines, and of course Brazil (massive 372bps – we really look forward for more color from today’s rate-setting meeting).
South Africa’s benign inflation prints for December should pave the way for a pretty uneventful central bank’s meeting on Thursday. Looking forward, higher food, oil, and energy prices pose potential upside risks. A pace of fiscal consolidation is another key factor for 2021 – and it is very high on the central bank’s watch list.
Chart at a Glance: 2021 Growth Projections – EM is not a Monolith
Source: VanEck Research; Bloomberg LP
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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