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  • Emerging Markets Debt Daily

    The Most Boring Day of the Year?

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    December 18, 2019

    Emerging markets (EM) central banks are getting more cautious about additional rate cuts. Argentina’s opposition raised objections to the emergency powers bill, but the market is looking through it.

    The inspiration for today’s title came from yesterday’s friendly “altercation” with a colleague, who (for some unexplained reason) thought that my headline about the Brazilian central bank taking a pause was not sufficiently exciting. I objected, telling him about a well-known Russian curse “May you live in interesting times”—especially with only a few trading days left in this year. Anyway, the much-appreciated boredom on the policy front continued this morning with both Thailand and the Czech Republic keeping their benchmark rates on hold (albeit maintaining an accommodative stance). The improving global growth outlook makes many EM central banks think twice before cutting more—especially against the backdrop of a thinner real rates cushion (see chart below).

    Argentina’s new administration encountered its first legislative hurdle after the parliamentary opposition made noises about the bill granting the government additional powers to deal with the economic crisis. The opposition argued that a very big chunk of the population voted against governmental intervention of this kind. This is indeed the case, but the Macri administration’s track record is far from stellar either. The noise notwithstanding, Argentina’s sovereign debt holders remain excited about the improved prospects of getting paid, while the government is contemplating its debt restructuring strategy.

    This morning brought additional signs of tentative stabilization in the Eurozone. Germany’s Ifo Business Climate Surveylooked more upbeat, suggesting that the slump is nearing the end—not just in the monetary union, but in the neighboring EMs. For some reason, however, U.S. officials decided to throw a policy curveball, with Trade Representative Robert Lighthizer drawing attention to “a very unbalanced relationship with Europe”. Hmmm...May you live in interesting times…

    Chart at a Glance: Real Rates Cushion in Emerging Markets Is Getting Thinner

    Real Rates Cushion in Emerging Markets Is Getting Thinner

    Source: Bloomberg LP

    The Ifo Business Climate Survey is a leading indicator of German economic activity, compiled by the Munich-based Ifo Institute for Economic Research.


    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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