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CBR Is Not CBRT

06 September 2018 by jbchevrel

CDX EM squeezed another -7bp today, making it potentially vulnerable to the $200B tariffs and NFPs. ADP came indeed weaker than expected, but the ADP-NFP link has proven tricky lately (average 70k spread on the past 3 prints). EM single-name CDS were broadly in line with the index, contrary to the Argentina-led moves seen WTD, as today’s move was more the result of various idiosyncratic stories. ARGENT (-60bp) indeed continued its rally as the IMF has moved surprisingly quickly to present the proposal to its board. SOAF (-12bp) as Q2 CAD was ‘less bad than’ Q1 (still high @ 3.3% GDP, and vulnerable if precious downtrend extends). BRAZIL (-10bp), as PT almost seems out of the race now Lula cannot run. That said, there are many undecided (20-25%) and the far-right candidate is polling 22%. Today’s outlier was RUSSIA (+6bp), wider on Medvedev comments which sounded like pressure on CBR, the ‘spy headline’, and the post-inventory 2.5% oil drop. On the former, I believe that the CBR (Russia) should not be compared too closely to the CBRT (Turkey). CBR’s independence is all relative, but their historical hike in Dec-14 and Nabiullina as a governor have strengthened their credibility. Beyond next week’s meeting (Sep 14), it will be worth watching whether the CBR extends its pause in foreign currency purchases post Sep 28. Elsewhere, CDS indices kept outperforming stocks, and the Main/IG spread kept tightening (back below 5bp for the first time since early August).