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  • Emerging Markets Debt Daily

    Mexico Rebounds on Tariffs Truce

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    June 10, 2019

    The tariffs truce between Mexico and the U.S. gave a much needed boost to sentiment. China’s trade numbers indicate that more policy support may be required in the coming months.

    The Mexican peso made quite a round-trip on the back of headlines about the tariffs truce with the U.S.
     (trading 192bps stronger vs. U.S. dollar at 8:45 a.m. ET, according to Bloomberg LP). There is still some confusion about the actual terms of the agreement, which should be finalized within the next 90 days (including Mexico’s large-scale purchases of U.S. agricultural products) but the overall sentiment is better. The episode, however, drew more attention to the overall outlook for emerging markets and their ability to withstand another spike in trade tension. Portfolio Manager Eric Fine will discuss these issues, inlcuding emerging markets debt, on Bloomberg Radio later today.

    Discussions about exports’ frontloading and economic weakness are back following the release of China’s May trade numbers
    . The frontloading comments were linked to a slightly stronger exports growth (1.1% year-on-year), but the biggest surprise came from imports, which undershot consensus by a wide margin, falling by 8.5% year-on-year. We continue to expect that past stimulus will support China’s domestic demand going forward—at least to a certain extent. However, the protracted trade war may necessitate additional policy moves, and perhaps allowing the currency to weaken beyond 7/U.S. dollar. The latest communications from the central bank suggest that this threshold is no longer “sacred”. 

    The monetary policy surprise of the month in emerging markets came from an unexpected source: Chile
    . The central bank cut its benchmark rate by 50bps (to 2.5%), citing the adverse impact of the trade war and concerns about the strength of the domestic recovery. It remains to be seen whether this will be a one-off corrective move, but it supports our argument that emerging markets monetary authorities will actively use the window provided by the more dovish Federal Reserve and the European Central Bank to make their own policy adjustments. 


    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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