Emerging Markets Debt Daily
Playing the Waiting Game in China and PeruNatalia Gurushina, Chief Economist, Emerging Markets Fixed Income StrategyJuly 30, 2021
As we wait for the next batch of China’s activity gauges, the Politburo expressed concern about the growth outlook and signals more fiscal support. Peru’s politics spooked the market—and some questions are still unresolved.
We are all waiting for the next batch of China’s activity gauges this weekend—the release that can send an important signal regarding the near-term growth trajectory. The consensus believes that the situation on the ground is stabilizing, and that we are not going to see further declines in the services Purchasing Managers’ Index. Meanwhile, the Politburo expressed concerns about a more difficult growth outlook in its press release and signaled a more pro-growth fiscal stance.
Another item on our watch list is Peru’s post-election policy agenda. This is part of a bigger story about LATAM’s alleged slide to populism. The developments of the past two days—especially the push for rewriting the constitution and the appointment of a left-leaning politician with no public office experience as Premier—indeed point to a populist bias, and the market got spooked. A “saving grace” may come in the form of a market-friendly Minister of Economy (the position was still vacant at the time of this note) and the reappointment of the current (very credible) governor of the central bank, but for now it is a waiting game.
This week was on the nerve-racking side, so I would like to finish it on a lighter note. Yesterday we talked about other types of EM contagion (policy contagion). Well, there is also another kind of higher yielding asset—like wild mountain strawberries. This year’s yield is off the charts (see a very representative average daily “chart” below). And please do not ask me about the place. It is classified. Porcini mushrooms are coming soon. I hope to see these high yields repeat. Have a great weekend!
Chart at a Glance: Highest Yielding (and Yummiest) Asset of the Week
Source: Natalia Gurushina
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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