By Natalia Gurushina, Economist for the Emerging Markets Fixed Income Strategy at VanEck
Turkey posted the largest 12-month trailing current account surplus in two decades. Mexico’s industrial production looks sad, justifying additional policy easing.
Turkey posted another good-looking current account print this morning. The monthly surplus was a touch smaller than expected in August (USD2.6B), but the 12-month trailing surplus reached USD5.1B, the highest since 2001 (see chart below). A big part of the improvement was due to softening domestic activity. The government’s recently unveiled plan to boost gross domestic product (GDP) growth to 5% naturally raises a question about the external surplus’s sustainability. These concerns were shared by the rating agency Moody’s, which warned that pump-priming the economy with cheap government loans might create new macro imbalances.
Mexico’s industrial production was slightly better than expected in August, but the seasonally-adjusted yearly growth stayed negative (-1.05%). Mexico’s manufacturing surveys and investments also look weak, clouding the near-term outlook for the sector (and the economy as a whole). This explains why the market continues to price in a fair amount of policy rate cuts going forward (165bps in the next 12 months, as of this morning).
China continues to liberalize its financial markets at a brisk pace. Authorities just announced a staggered schedule for the removal of foreign financial ownership caps starting from January 1, 2020. The timing of the announcement is interesting (given the schedule of the trade talks with the U.S.), but the overall policy direction is more closely related to secular changes that are taking place in the Chinese economy—specifically, a shift from investments and net exports towards consumption as per capita income goes up. This reduces China’s current account surpluses and increases the need for larger capital inflows.
Chart at a Glance: Turkey’s Current Account Surplus is the Largest in Two Decades
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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