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  • Emerging Markets Debt Daily

    Tantrums and Chocolates

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    December 19, 2019

    Indonesia’s central bank holds, but monitors capital inflows, growth and external factors. The U.S. Senate Foreign Relations Committee voted to advance the Russia sanctions (DASKA) bill.

    The discovery of the day is that a combination of tantrums (drawing attention to the point) and chocolates (positive reinforcement) does wonders in persuading your (less appreciative) colleagues that your daily blog headlines are not lame. My colleague (of “Brazil central bank headline is boring” fame) came back to me with disavowals and claims that it was all “fake news”. Anyway, what is definitely not fake news is that Emerging Markets (EM) continue to generate very neat—and investable—macro stories. I would highly recommend listening to CEO Jan van Eck’s quarterly outlook, where he talks about one such story in India (a hint—the world’s next big digital platform), as well as a bunch of other important global issues that will help you to navigate the 2020 investment landscape.

    The U.S. Senate Foreign Relations Committee voted to advance the Russia sanctions bill, known as DASKA. The market yawned, as the timing of the full senatorial vote remains uncertain. However, the bill imposed a 45-day deadline for the Secretary of State and Director of National Intelligence to report back to Congress on whether Russia is actively interfering in U.S. elections, which can potentially lead to new sanctions. The key issue is whether the sanctions will affect Russia’s new domestic government bonds (OFZs)—this can result in outflows from the domestic debt market and renewed pressures on the currency.

    The global environment is providing more food for thought for EM central banks. There are tentative signs of recovery, and signals from monetary authorities in developed markets (DM) are no longer super-dovish. The Bank of England noted today that “rates are much more likely to rise next year than to fall”. We also had the first negative rate “defection” earlier today, with Sweden hiking its key rate by 25bps (to 0%). It is hardly surprising that many EM central banks are opting for a pause in order to evaluate the situation. This group now includes Indonesia, which kept its policy rate on hold at 5% earlier today.


    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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