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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX caught a bid last week as markets took Fed comments to be on the dovish side. Given how firm the US data have been of late, we do not agree with the newly prevailing view that the Fed will be more cautious. However, we must respect the price action and so this dollar correction will likely extend until the market’s Fed view reverses again.

Thailand reports Q3 GDP Monday, which is expected to grow 4.2% y/y vs. 4.6% in Q2. Bank of Thailand just kept rates steady 1.5% last week. 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.

Chile reports Q3 GDP Monday, which is expected to grow 2.9% y/y vs. 5.3% in Q2. The recovery is picking up, leading the central bank to start the tightening cycle in October with a 25 bp hike. However, lower copper prices could be a headwind on the economy in 2019 and so the pace of tightening should be modest. Next policy meeting is December 4, no change is expected then.

Taiwan reports October export orders and Q3 current account Tuesday. Orders are expected to rise 4.0% y/y vs. 4.2% in September. October IP will be reported Friday, which is expected to rise 4.0% y/y vs. 1.5% in September. The slowdown in mainland China is having a negative impact on Taiwan.

Poland reports October industrial and construction output and PPI Tuesday. Data are expected to pick up from September. Real retail sales will be reported Thursday, which are expected to accelerate to 5.7% y/y. Central bank minutes will also be released Thursday. 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.

National Bank of Hungary meets Tuesday and is expected to keep policy steady. 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 ultra-dovish stance at this meeting.

Korea reports trade data for the first 20 days of November Wednesday. Policymakers are concerned about rising headwinds to the economy stemming from global trade tensions. Next BOK meeting is November 30, and no change is expected then.

South Africa reports October CPI Wednesday, which is expected to rise 5.2% y/y vs. 4.9% in September. If so, this would be the highest since May 2017 and nearing the top of the 3-6% target range. SARB then meets Thursday and is expected to hike rates 25 bp to 6.75%. The market is split, however. Of the 15 analysts polled by Bloomberg, 7 see no change and 8 see a 25 bp hike. We lean towards a hike.

Mexico reports mid-November CPI Thursday, which is expected to rise 4.61% y/y. Banco de Mexico just hiked rates 25 bp to 8.0% last week. The peso has come under renewed pressure from heightened political risk even as inflation edges higher, so further tightening seems likely in 2019. Q3 current account data will be reported Friday.

Singapore reports October CPI Friday, which is expected to rise 0.8% y/y vs. 0.7% in September. The MAS does not have an explicit inflation target, but low price pressures should allow it to remain on hold at its next policy meeting in April. US-China trade tensions are likely to impact the regional export powerhouses like Singapore.

Brazil reports mid-November IPCA inflation Friday, which is expected to rise 4.46% y/y vs. 4.53% in mid-October. Inflation remains low and so markets have pushed out the timing of the first rate hike into 2019. Next COPOM meeting is December 12, no change is expected then. We think it would be a good signal for incoming central bank chief Roberto Campos Neto to hike rates at his first COPOM meeting February 6.

Macro Global Investor Insights

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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