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  • Emerging Markets Debt Daily

    Notable Boost in China Activity in June

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    July 15, 2019

    China’s real gross domestic product (GDP) growth slowed in Q2 as expected (to 6.2% year-on-year)—but all activity indicators rebounded visibly in June (see chart below). A bounce in yearly retail sales was particularly strong (9.8% year-on-year), reflecting the past “drip” stimulus measures and looking consistent with the emergence of China’s “new economy” which is more oriented towards consumption (check our blog How Is China’s Economy Doing?). A pick-up in fixed assets investments was driven by private companies, whereas investments by state-owned corporates eased a bit more—a positive structural sign consistent with policy emphasis to improve financing in this sector. Industrial production and manufacturing also beat expectations in June. The data send a strong signal to authorities that their approach to prop up growth is bearing fruit, so we expect to see more targeted measures going forward.

    The final vote on Brazil’s pension reform bill was delayed until August 6, as the speaker of the lower house Rodrigo Maia decided to avoid a risk of not getting the required quorum. This is not the ideal situation—Maia was setting the stage for the approval before the summer recess—but it is still consistent with the bill getting passed in the senate in September. The approval of the bill sets the stage for policy rate cuts—even though economic activity rebounded nicely in May (the first positive monthly growth rate since December), the growth outlook remains weak and policy support would be much appreciated.  

    The dismissal of the central bank’s governor in Turkey—and its implications for policy-making—did not go unnoticed by rating agencies. After the market close on Friday, Fitch cut the sovereign rating to BB- with negative outlook, citing the aforementioned reasons, as well as concerns about the impact of potential U.S. sanctions on sentiment. The central bank’s new governor, Murat Uysal, sounded fairly disciplined in his first official interview, talking about room for maneuver in monetary policy but mentioning the need for caution and data-dependency. But the real test of whether this is indeed the case will come on July 25.

    Chart at a Glance

    China Value Added of Industry

    Source: Bloomberg LP


    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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