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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX had an awful week, with virtually every currency down against the dollar. The lone exception was MYR, which managed to end flat on the week. The divergence theme remains supportive for the dollar, and that should keep downward pressure on EM. We may see some corrective bounces from time to time but we remain negative on EM. FOMC meeting and China PMI readings should help set the tone for markets.

Brazil reports March central government budget data Monday. A primary deficit of -BRL20.1 bln in expected. Consolidated budget data will be reported Tuesday, where a primary deficit of -BRL22.4 bln is expected. Tax collections rose only 4% y/y and so the deficit data may disappoint. April trade data will be reported Thursday. March IP will be reported Friday and is expected to contract -4.9% y/y vs. +2.0% in February.

Korea reports March IP Tuesday, which is expected to contract -1.0% y/y vs. -2.7% in February. April trade data will be reported Wednesday, with exports expected to contract -6.0% y/y and imports by -1.3% y/y. April CPI will be reported Thursday, which is expected to remain steady at 0.4% y/y. If so, inflation would remain well below the 2% target. Next BOK meeting is May 31, no change is expected then.

China reports official PMI readings for April Tuesday.Manufacturing PMI is expected at 50.6 vs. 50.5 in March, while non-manufacturing PMI is expected at 55.0 vs. 54.8 in March. Caixin reports its China April manufacturing PMI Thursday and is expected at 51.0 vs. 50.8 in March. Data from other countries in the region (Korea and Taiwan) so far do not corroborate the firm Chinese data reported for March.

Thailand reports March IP and trade Tuesday. IP is expected to contract -2.06% y/y vs. -1.56% in February. April CPI will be reported Wednesday, which is expected to rise 1.20% y/y vs. 1.24% in March. If so, inflation would remain near the bottom of the 1-4% target range. Next policy meeting is May 8, no change is expected then.

Turkey reports March trade Tuesday, which is expected at -$2.1 bln. The central bank also releases its quarterly inflation report that same day. April CPI will be reported Friday and is expected to rise 20.4% y/y vs. 19.7% in March. Last week, the bank delivered a dovish hold by dropping the reference to future rate hikes if needed. Next policy meeting is June 12, and much will depend on the lira. We believe the central bank will eventually be forced to tighten policy.

Taiwan reports Q1 GDP Tuesday, which is expected to grow 1.40% y/y vs. 1.78% in Q4. The economy remains sluggish, and weak export orders in Q1 suggest little relief in Q2 and Q3. The central bank does not have an explicit inflation target, but low price pressures should allow it to remain on hold this year.

Poland reports April CPI Tuesday, which is expected to rise 1.8% y/y vs. 1.7% in March. If so, it would remain near the bottom of the 1.5-3.5% target range. The central bank shows no sign of abandoning its dovish stance nor its intent to keep policy steady into 2020. Next policy meeting is May 15, no change is expected then.

South Africa reports March money and private sector credit, budget, and trade data Tuesday. The economy remains sluggish but the SARB has been unable to cut rates due to rising inflation. This is especially true if the rand remains under pressure. Next policy meeting is May 23, no change is expected then.

National Bank of Hungary meets Tuesday and is expected to keep rates steady at 0.90%. CPI rose 3.7% in March, which is near the top of the 2-4% target range. However, the bank has signaled that it will retain its dovish stance for now.

Chile reports March IP Tuesday, which is expected to contract -0.2% y/y vs. -3.6% in February. March retail sales will be reported Friday, which is expected to rise 1.0% y/y vs. 0.7% in February. The economy remains sluggish, while inflation 0f 1.8% y/y in March remains below the 2-4% target range. We see steady rates for the time being. Next policy meeting is May 9, no change is expected then.

Mexico reports Q1 GDP Tuesday, which is expected to grow 1.4% y/y vs. 1.7% in Q4. The economy remains sluggish, but inflation has started to accelerate again. Many thought a rate cut would be possible late this year, but we think recent developments will prevent this. This includes the softer peso. Next policy meeting is May 16, no change is expected then.

Indonesia reports April CPI Thursday, which is expected to rise 2.60% y/y vs. 2.48% in March. If so, inflation would remain near the bottom of the 2.5-4.5% target range. Bank Indonesia delivered a dovish hold last week that we think starts to set the table for a rate cut. Next policy meetings are May 16 and June 20, but those may be too soon. We favor a cut in Q3, perhaps at the July 18 meeting.

Czech National Bank meets Thursday and is expected to hike rates 25 bp to 2.0%. CPI rose 3.0% y/y in March, right at the top of the 1-3% target range. Central bank Governor Rusnok recently highlighted risks of another rate hike but warned that it will be a very close call. The bank has been on hold since the last hike November 1 due to concerns about slowing growth.

Colombia central bank releases its minutes Friday. April CPI will be reported Saturday, which is expected to rise 3.17% y/y vs. 3.21% in March. Last Friday, the bank delivered a dovish hold. Governor Echevarria noted that “What I see is similar to the market’s view of stable rates. We’ll see for how long, but there’s no pressure to raise rates.” We expect steady rates into 2020.

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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