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Emerging Markets Debt Daily
Implications of China’s Going GreenNatalia Gurushina, Chief Economist, Emerging Markets Fixed Income StrategyDecember 13, 2020
Turkey’s current account showed a visible improvement in October. Mexico’s industrial production ended the year on a high(er) note.
China’s weekend announcement that it will boost the share of non-fossil fuels in primary energy consumption to 25% by 2030 was notable for a number of reasons. China’s earlier “green” push had been linked to slower growth, so the new – higher – target raises more questions about the future GDP trajectory. China’s green ambitions and the resulting shift in its commodity demand – in particular for oil (lower?) and metals (higher?) – will also have fundamental and market implications for wider Emerging Markets (EM) in the years to come. Details and the pace are important, and they might be announced as part of the 14th5-year plan.
Turkey’s industrial production growth was back to double digits in October (10.2% year-on-year – see chart below), but this was probably the “last hurrah” before the policy U-turn aimed at curbing the government-led credit surge. Still, the sizable upside surprise can strengthen the expectation of another benchmark rate hike on December 24. The hike – even a modest one – will show that authorities mean business, especially as higher inflation pushed the real policy rate below 1%, eroding the much-needed policy cushion.
India’s inflation moderated more than expected in November, leading to suggestions that this opened up space for a small policy rate cut. Well, annual headline inflation indeed moderated from 7.61% to 6.93%, but it remained above the central bank’s target. Further, the deceleration was narrow-based (perishable food, fuels) and in part due to a favorable base effect, which are not typical reasons for policy easing.
Chart at a Glance: Turkey Industrial Growth – Current Pace Will Be Hard To Sustain
Source: Bloomberg LP
IMPORTANT DEFINITIONS & DISCLOSURES
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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