Natalia Gurushina, Economist, Emerging Markets Fixed Income
January 21, 2020
The morning is rich in headlines (President Donald Trump’s speech in Davos, Moody’s downgrade of Hong Kong, truce on U.S.-France tariffs), but a bit thin in data releases—other than sporadic signs of green shoots around the globe (Eurozone’s stronger than expected ZEW survey,1 Taiwan’s Q4 GDP, South Korea’s 20-day exports, South Africa’s leading indicator). The “shoots” are in line with the IMF’s latest assessment of the global growth outlook (“tentative stabilization”), but not yet reflected in the IMF’s updated forecast, which sees a weaker rebound in 2020 compared to October’s estimate.
The Chinese renminbi’s big intra-day move (53bps weaker as of 9:00am EDT, according to Bloomberg LP) did not go unnoticed. The drop reflected concerns about an outbreak of pneumonia and the fact that it might get worse due to more intensive travel around the Lunar New Year. The World Health Organization is holding an emergency meeting tomorrow. From the macroeconomic point of view, the main concern is the impact on China’s cyclical growth rebound. The central bank is holding its line for now—providing ample liquidity for the holidays, but refusing to flood the system with cheaper credit (1-year Loan Prime Rate was left unchanged on Sunday against the expectation of a 5bps cut). The People’s Bank of China will have another chance to fine tune its policy when a targeted medium-term lending facility (TMLF) matures on Thursday.
Argentina carried out another domestic debt swap in order to extend its maturity deadlines. The exercise involved a voluntary exchange of short-term Treasury bills (Lecaps) for Treasury notes linked to the BADLAR rate,2 which mature at a later date. An additional reason for the exchange is to limit near-term domestic liquidity injections that can potentially put pressure on the currency and inflation.
1 The monthly ZEW survey aggregates the sentiments of approximately 300 economists and analysts and is used as an indicator of the economic future for the coming six months.
2 The BADLAR rate is the average interest rate applicable to 30-35 days’ term deposits of Pesos 1,000,000 or more with private financial institutions located in the City of Buenos Aires or the Greater Buenos Aires area, resulting from the survey made by the Argentine Central Bank.
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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