Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
June 17, 2020
China fails to get a market economy designation from the WTO. Brazil’s rate-setting meeting is closely watched.
I am writing this daily from my car in a parking lot for the village church. The neighborhood router is out. And this is the only place with decent reception. So I am adding this to the list of seriously weird places to write the daily. I need to create a coffee table book about it one day...
Tensions in Asia are moving to the forefront, with a long list of headlines that includes the Korean Peninsula escalation, the India-China border conflict, Chinese jets’ “excursion” into the Taiwanese airspace, the COVID outbreak in Beijing, and, finally, China’s failure to secure a market economy designation from the World Trade Organization (WTO) in its trade investigations. China let its WTO “status” dispute against the EU lapse, which can make it easier for the U.S. and the EU to impose new tariffs on Chinese goods and introduce other measures to combat “unfair” advantages enjoyed by Chinese exporters.
The ranks of “Emerging Markets (EM) Graduates”—economies with very solid macro and institutional frameworks—are expanding, but this comes with some side-effects, such as stronger currencies. The main problem is that this often interferes with monetary easing—like in two Central European “graduates”, Poland and the Czech Republic. Poland’s national bank attempted to talk the zloty down yesterday, warning that a lack of “visible” currency adjustment is a threat to the post-COVID recovery. However, so far verbal interventions in both countries are falling on deaf ears.
Today’s focal point in Brazil is the central bank’s rate-setting meeting. The consensus expects a 75bps rate cut, but what is even more important is a signal that it is willing to extend the current easing cycle. The market thinks “yes”, pricing in an additional 25bps cut (to 2%). The macro backdrop looks supportive—growth is very weak and inflation dropped to 1.88% year-on-year in May, well outside the 2.5-5.5% target range. However, some analysts are openly asking whether the central bank has gone too far—not the best question to see in a publication.
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.
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.
Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
Web Access Notice: VanEck is committed to ensuring accessibility of its website for investors and potential investors, including those with disabilities. If you have difficulty accessing any feature or functionality on the VanEck website, please feel free to call us at 800.826.2333 or email us at firstname.lastname@example.org for assistance.
This website is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this website. Nothing on this website should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
Investing involves risk, including possible loss of principal. An investor should carefully consider investment objectives, risks, charges and expenses carefully before investing. This and other information can be found in the appropriate regulatory documents made available for a specified country as designated in this website.
Van Eck Associates Corporation 666 Third Avenue New York, NY 10017800.826.2333