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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

The dollar rally is back on track as the divergence theme re-emerges. DXY traded last week at its highest level since April 2 and is on track to test that day’s cycle high near 97.71. For EM, that has translated into broad-based losses this past week. ARS, RUB, and a handful of other were able to notch small gains last week, but most EM currencies were down against the greenback. COP, BRL, ZAR, and TRY were the worst performers and we see further EM losses ahead.

Korea reports trade data for the first 20 days of April Monday. Q1 GDP will be reported Thursday, which is expected to grow 2.5% y/y vs. 3.1% in Q4. The BOK just left rates steady but shaved its growth forecast for this year a tick from its January projection to 2.5% and cut its inflation forecast to 1.1% from 1.4%. With growth headwinds still strong, we believe rates will be kept on hold for the rest of this year. Next policy meeting is May 31, no change is expected then.

Taiwan reports March export orders Monday, which are expected to contract -5.0% y/y vs. -10.9% in February.March IP will be reported Tuesday, which is expected to contract -1.4% y/y vs. -1.8% in February. Headwinds on the economy remain strong, while price pressures remain very low. This should keep the central bank on hold this year. Next quarterly policy meeting is in June, no change is expected then.

Singapore reports March CPI Tuesday, which is expected to rise 0.7% y/y vs. 0.5% in February. March IP will be reported Friday and is expected to contract -5.0% y/y vs. +0.7% in February. While the MAS does not have an explicit inflation target, low price pressures and growing headwinds to growth should keep it on hold at its next semiannual policy meeting in October.

Poland reports March real retail sales Tuesday, which are expected to rise 2.7% y/y vs. 5.6% in February. The economy has held up relatively well considering the slowdown in Western Europe. However, the central bank is likely to retain its dovish stance and keep rates steady well into 2020. Next policy meeting is May 15, and no change is expected then.

Mexico reports mid-April CPI Wednesday, which is expected to rise 4.25% y/y vs. 3.95% in mid-March. If so, it would be the highest since January and further above the 2-4% target range. Banco de Mexico might be able to cut rates later this year, but for now, it’s steady rates. Next policy meeting is May 16, no change is expected then. March trade will be reported Friday, where a $2.1 bln surplus is expected.

Bank Indonesia meets Thursday and is expected to keep rates steady at 6.0%. CPI rose 2.5% y/y in March, the lowest since November 2009 and just at the bottom of the 2.5-4.5% target range. With the rupiah and markets digesting the recent elections well, we think BI will start cutting rates before mid-year. This week may be too soon, however. Next policy meetings after this week are May 16 and June 20.

Central Bank of the Republic of Turkey meets Thursday and is expected to keep rates steady. However, the bank may resort to more stealth tightening if the lira remains under pressure. CPI rose 19.7% y/y in March, above the increasingly irrelevant 3-7% target range. With the lira down another 4% this month so far, inflation is likely to accelerate, and more aggressive tightening will likely be needed.

Brazil reports mid-April IPCA inflation and March current account data Thursday. Inflation is expected to pick up to 4.65% y/y from 4.18% in mid-March. If so, this would be the highest rate since mid-March 2017. Rising price pressures and delays to pension reforms should scuttle any notion of further monetary easing. Next COPOM meeting is May 8, no change is expected then.

Central Bank of Russia meets Friday and is expected to keep rates steady at 7.75%. CPI rose 5.3% y/y in March, above the 4% target and the highest since December 2016. With the ruble firm, the central bank has leeway to keep rates steady for now.

Colombia central bank meets Friday and is expected to keep rates steady at 4.25%. CPI rose 3.21% y/y in March, the highest since November and in the top half of the 2-4% target range. However, considering heightened global uncertainty, we believe the central bank will remain on hold for the time being.   Consensus sees the first hike in Q3 but that will depend in large part on external factors.

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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