By Natalia Gurushina
Chief Economist, Emerging Markets Fixed Income
Global Growth Headwinds
South Korea’s sluggish early-October exports added to concerns about the global growth outlook. South Korean trade numbers are often used as a gauge for global activity, so a 5.5% annual decline in 20-day exports (see chart below) did not go unnoticed. The fact that exports to China fell by 16.3% raised further questions about the policy response in the aftermath of the communist party congress. Today’s 40bps cut in the margin refinancing rates by the China Securities Finance Corporation suggests that the “targeted” approach is still the preferred one, but the new lineup of the Politburo Standing Committee (to be announced tomorrow) should signal whether this will still be the case going forward.
Asia Policy Tightening
Another reason we keep an eye on emerging markets (EM) Asia is that the region might actually be able to avoid the high inflation “curse” that plagued Emerging Europe and LATAM (as well as developed markets (DM)) for most of the year. Malaysia’s below-consensus headline inflation print comes on the heels of a downside inflation surprise in Indonesia – and it is also quite low in a global context (“mere” 4.5% year-on-year). Still, communications from the Indonesian central bank show that sticky core inflation is a risk – similar to Malaysia – and it warrants additional policy tightening (especially against the backdrop of solid domestic activity and the U.S. Dollar strength).
Inflation Pressures In LATAM
Weaker than expected retail sales in Mexico suggest that some domestic inflation pressures might be easing in that part of the world, but we’ll get a more definitive answer on Monday, after the release of bi-weekly inflation. The consensus sees tentative moderation in headline inflation, but not yet in core prices – and this means that another 75bps rate hike (to 10%) might still be on the table in early November. The latest market expectations see double-digit terminal rates in most LATAM economies – and there are still questions whether some countries (Chile) can stop tightening safely, and whether others (Colombia) would be under increasing pressure to accelerate hikes (Colombia). Stay tuned!
Chart at a Glance: Global Activity Gauge – Still Heading South
Source: Bloomberg LP
Originally published by VanEck on October 21, 2022.
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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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