By Natalia Gurushina, Economist, Emerging Markets Fixed-Income for VanEck Global
Mexico opted for a cautious 25bps policy rate cut. Chile bounced after administration and the opposition reached a deal on constitutional reform.
Policy gradualism prevailed in Mexico, where the central bank opted for a 25bps policy rate cut yesterday. The decision was not unanimous, with some board members arguing for a deeper cut. However, residual concerns about the pace of disinflation (especially core prices) kept “super-doves” at bay. Looking forward, Mexico’s macro backdrop leaves room for more agressive easing. The fact that guidance no longer mentions the U.S. Federal Reserve, while there are several references to weaker growth and uncertain external environment, looks like a prep work to us. All eyes are now on the new set of the central bank’s macro forecasts, which will be released at the end of the month.
Chile bounced big time this morning after the administration reached an agreement with the opposition on constitutional reform, under which the draft is likely to be produced by a constitutional convention. The central bank’s quick decision to enhance its liquidity program (after it flopped on Thursday) contributed to better sentiment. Chile is at the beginning of a long and difficult process—a referendum on the constitutional assembly will only be held in April 2020—but at least there is a light at the end of the proverbial tunnel.
We continue to get encouraging signals from Argentina—both regarding the composition of the new cabinet and the incoming administration’s approach to debt restructuring. According to local reports, Guillermo Nielsen—who might become new Minister of Economy—is pushing for a “rapid renegotiation”, which is a key consideration for debt holders (and the price action). One area where we feel the need to curb our enthusiasm is inflation. October’s downside surprise was most likely the “last hurrah”, as the government just lifted restrictions on crude and fuel prices.
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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