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  • Emerging Markets Debt Daily

    Macro Surprises – Who Benefits?

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    May 13, 2021

    The U.S. tapering narrative is attempting a comeback, but the real rates differentials between some EMs and the U.S. look much more attractive now.

    Global stocks – including some Emerging Markets (EM) – are feeling better this morning, as the market continues to digest a barrage of data surprises in the U.S. The “U.S. tapering” narrative is attempting a comeback (the Fed futures are pricing the first hike in about 23 months) – and so are the questions about the “collateral damage” in the EM rates space. But here is a thought – look at the chart below that shows the real interest rate differential between the U.S. and China. We cannot help but wonder whether rising U.S. inflation can show EM debt (selectively, of course) in a more positive light. 

    The economic activity indicator for March was supposed to be today’s focal point in Brazil (it rebounded nicely to 6.26% year-on-year), but everybody’s glued to the latest presidential voter intention polls, which show ex-President Luiz Inácio Lula da Silva winning with a huge margin in the runoff (50%+ vs the incumbent’s 32%). Now, the key thing to remember is that (a) the elections take place in 2022, and (b) there may be other viable candidates (other than the current president Jair Bolsonaro). Brazil’s COVID second wave might be peaking as well, which can influence future polls. With all this in mind – and taking into account the solid economic activity rebound (=GDP upgrades) – the Brazilian real’s mini-rally (among top three EM FX today) does not look that surprising.  

    Nobody expects the Mexican central bank to hike this afternoon, but the statement can provide useful insights regarding the policy normalization plans for the rest of the year. The market recently raised its tightening expectations to nearly two full hikes in the next six months on the back of stronger domestic activity and sticky inflation. But the composition of the central bank’s board has changed and is getting more dovish. So, stay tuned!

    Charts at a Glance: Real 10-Year Rates in China and U.S. – Mind the Gap!

    Charts at a Glance: Real 10-Year Rates in China and U.S. – Mind the Gap!

    Source: Bloomberg LP

  • PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies. A reading above 50 indicates expansion, and a reading below 50 indicates contraction; 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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  • Authored by

    Natalia Gurushina
    Chief Economist, Emerging Markets Fixed Income Strategy

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