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  • Emerging Markets Debt Daily

    Mexico Matches U.S. Cut

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    August 16, 2019

    Mexico’s central bank cut its policy rate, opting to support weakening domestic activity. Turkey’s industrial production weakened more than expected in July, providing more reasons for monetary easing.

    Mexico’s central bank jumped on the rate-cutting bandwagon yesterday, lowering the benchmark rate by 25bps to 8%. The move looked like “conscious recoupling” with the U.S., but the statement indicated that there was no firm commitment yet. Many market participants, however, expect additional policy easing in the coming months—the very high real policy rate looks like an impediment when domestic activity is clearly stalling. Discussions about a possible shift to a dual policy mandate echo this sentiment.

    Turkey’s industrial production disappointed in June, moving further into contraction territory (-3.9% year-on-year). The decline was deeper than expected, raising concerns not just about domestic activity, but also about the budget execution and other sovereign metrics. The release sends a strong signal that the central bank will cut again in the coming months, especially if rising unemployment (which posted the highest rate since 2005 in seasonally-adjusted terms in May) will weigh on consumption.

    Argentina’s downside inflation surprise looks completely irrelevant now, as the currency’s depreciation is likely to push prices higher already next month. Authorities are trying to mitigate the impact on the poor, temporarily removing the value-added tax on some basic foods. But it’s unlikely to do much for President Mauricio Macri’s re-election chances (too little, too late). The focus now shifts to the International Monetary Fund’s (IMF's) visit to Buenos Aires next week—the country has resources to meet its external obligations through the elections, but the new administration would need to have a candid discussion with the IMF about the longer-term outlook.


    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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