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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX has come under renewed pressure as the dollar staged a broad-based recovery after the FOMC meeting. Data this week is likely to show continued robustness in the US economy, cementing a December hike by the Fed. Elsewhere, concerns about China, Italy, and Brexit are likely to weigh on market sentiment. We remain negative on EM.

China reports money and new loan data this week, but no date has been scheduled. Retail sales and IP will be reported Wednesday, with the former expected to rise 9.2% y/y and the latter by 5.8% y/y. Both would be steady from September. We are seeing growing concerns about growth in China, embodied by continued stimulus measures by policymakers.

Turkey reports September current account data Monday, where another surplus is expected. September IP will be reported Friday and is expected to rise 1.5% y/y vs. 1.7% in August. The external accounts have improved because the economy is slowing sharply. Inflation remains elevated, but the firm lira has given the central bank leeway to keep rates steady.

India reports October CPI and September IP Monday.CPI is seen rising 3.6% y/y vs. 3.77% in September, while IP is seen steady at 4.3% y/y. October WPI will be reported Wednesday and is expected to rise 4.93% y/y vs. 5.13% in September. Next RBI policy meeting is December 5 and the decision will likely be determined by the rupee.

Brazil reports September retail sales Tuesday, which are expected to rise 1.6% y/y vs. 4.1% in August. The economy remains sluggish, and markets have pushed out the timing of the first rate hike into 2019. Next COPOM meeting is December 12, no change is expected then.

Poland reports September trade and current account data Tuesday. The external accounts are worsening but remain low by historical standard. Poland reports Q3 GDP Wednesday, which is expected to grow 4.6% y/y vs. 5.1% in Q2. The economy remains very robust, but price pressures have eased in recent months. For now, the bank is sticking with its forward guidance of steady rates through 2019.

Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.5%. A small handful of analysts look for a 25 bp hike to 1.75%. CPI rose 1.2% y/y in October, below the 2.5% target and near the bottom of the 1-4% target range. BOT has signaled it is in no hurry to hike rates and we see steady rates well into 2019.

Czech Republic reports Q3 GDP Wednesday, which is expected to grow 2.6% y/y vs. 2.4% in Q2. The economy remains robust, while price pressures remain elevated. However, the central bank hinted that it may pause at its next meeting December 20.

Hungary reports Q3 GDP Wednesday, which is expected to grow 4.4% y/y vs. 4.8% in Q2. Here too, the economy remains robust and price pressures remain elevated. CPI rose 3.8% y/y in October, a cycle high and near the top of the 2-4% target range. We think that the central bank may start to shift away from its dovish stance at the next policy meeting November 20.

South Africa reports September retail sales Wednesday, which are expected to rise 1.9% y/y vs. 2.5% in August.The economy remains sluggish and yet price pressures are elevated and SARB has tilted hawkish. Next policy meeting is November 22 and the decision will depend in large part on how the rand is trading then.

Colombia reports September retail sales and IP Wednesday. It reports Q3 GDP Thursday, which is expected to grow 2.7% y/y vs. 2.5% in Q2. Lower oil prices are a growing headwind on the economy. If oil prices fall further, markets may start to rethink the timing of the first rate hike. Right now, markets expect the central bank to start in Q1 2019.

Bank Indonesia meets Thursday and is expected to keep rates steady at 5.75%. 1 analyst sees a 25 bp hike to 6.0%. October trade will be reported the same day. CPI rose 3.2% y/y in October, below the 3.5% target but within the 2.5-4.5% target range. The weak rupiah has been the main driver for the current tightening cycle rather than rising inflation. As such, the firm currency should allow BI to stand pat this week.

Bangko Sentral Ng Pilipinas meets Thursday and is expected to keep rates steady at 4.5%. However, the market is split. Of the 7 analysts polled by Bloomberg, 4 see no hike and 3 see a 25 bp hike to 4.75%. CPI rose 6.7% y/y in October, well above the 2-4% target range. We believe the bank will hike this week, though the firm peso may tip the scales to no hike.

Banco de Mexico meets Thursday and is expected to hike rates 25 bp to 8%. The peso has come under renewed pressure from political risk even as inflation edges higher. AMLO has walked back his Senate ally’s plan to eliminate some banking fees but it’s clear that markets had gotten to sanguine about political and policy risk in Mexico.

Argentina reports October CPI Thursday, which is expected to rise 46.1% y/y vs. 40.5% in September.Despite rising inflation, the central bank appears to have done enough to stabilize the peso and so policy can be kept on hold for the time being.

Check out the EM Preview for the Week Ahead and other musings & insights on Emerging Markets at BBH’s “Mind on the Markets” blog.

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Win Thin is the Global Head of Emerging Markets Strategy and has over 25 years of investment experience. He has a broad international background with a special interest in developing markets. Prior to joining BBH in June 2007, he founded Mandalay Advisors, an independent research firm that provided sovereign emerging market analysis to institutional investors. Prior to that, Win was a vice president and international economist, covering major emerging markets in Asia and Latin America for Alliance Capital Management

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