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    Turkey Personnel Overhaul – A Turning Point?

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    November 09, 2020

    All eyes are on Turkey’s policy mix following the surprising personnel overhaul. China’s softer import growth is not yet indicative of weaker domestic demand.

    The surprising resignation of Turkish Minister of Finance Berat Albayrak and the firing of the central bank governor Mural Uysal (almost) overshadowed the U.S. election saga and led to a monstrous rally in Turkish assets. There is one big unknown, however: does this drastic leadership overhaul signal a turning point in economic policy, or is President Recep Erdogan simply blaming Albayrak and Uysal for his own failures? The lira’s price action this morning suggests that the market would like to see a follow-up in the form of a benchmark rate hike and a credible fiscal agenda. Targeting the international reserves instead of the currency would be another welcome change.

    China’s exports strengthened further in October (up 11.4% year-on-year), but softer than expected imports (up 4.7% year-on-year) raised some questions about domestic demand. As a general rule, we try not to make far-reaching conclusions on the basis of just one month of data, especially when there are several opposing base effects and a likely correction from a very strong September number. 3-month moving averages look fine—both as regards imports’ growth (see chart below) and imports’ levels. The imports PMI (Purchasing Managers Index) rose further in October and remained above the contraction/expansion threshold of 50.0. Importantly, China’s “drip” stimulus approach leaves plenty of room to prop up growth if necessary.

    Mexico’s headline inflation accelerated more than expected in October (to 4.09% year-on-year). However, details show a “less bad” picture. The upside surprise was mostly due to higher food and regulated prices (=transitory factors), whereas sequential core inflation undershot consensus. This explains why the central bank is still expected to go for another small rate cut on Thursday before taking a pause.

    Chart at a Glance: China Imports – Still Going Strong

    Chart at a Glance: China Imports – Still Going Strong

    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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