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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

The global backdrop for EM remains challenging. Trade tensions remain high and show no sign of letting up. China PMIs will offer the first snapshot of the economy for May and it won’t be pretty. Lastly, press reports suggest the US will consider allowing tariffs on countries that have undervalued currencies. No good will come of this for EM.

Brazil reports April current account and FDI data Monday. Brazil reports central government budget data Wednesday, where a BRL9.7 bln primary surplus is expected. It then reports Q1 GDP Thursday, where growth is expected to slow to 0.5% y/y from 1.1% in Q4. The IMF now sees 2019 growth between 1.0-1.5% vs. 2.1% in April and added that there are “significant downside risks” to the forecast. Consolidated budget data will be reported Friday, where a primary surplus of BRL7.9 bln is expected. Slow growth is impacting the budget numbers even as policymakers struggle to push through pension reforms.

National Bank of Hungary meets Tuesday and is expected to keep rates steady at 0.90%. CPI rose 3.9% y/y in April, just below the top of the 2-4% target range. The bank snugged the overnight deposit rate 10 bp higher to -0.05% back in March whilst leaving the policy rate steady. We see some risk of further modest tightening at this meeting.

Banco de Mexico releases its quarterly inflation report Wednesday. It then releases its minutes Thursday. CPI rose 4.43% y/y in mid-May, above the 2-4% target range. Easing is unlikely until 2020. Next policy meeting is June 27, and rates are likely to be kept steady at 8.25% then.

South Africa reports April PPI, money and private sector credit, and budget data Thursday. April trade will be reported Friday. The economy likely contracted in Q1, and so the April data will be closely watched for signs of recovery. We remain negative on the economic outlook, and the SARB is tilting more dovish. Next policy meeting is July 18. No change is expected, but we see some chance of a cut then. Much will depend on the rand.

Bank of Korea meets Friday and is expected to keep rates steady at 1.75%. CPI rose 0.6% y/y in April, well below the 2% target. Earlier on Friday, Korea reports April IP and is expected to contract -2.5% y/y vs. -2.8% in March. May trade will be reported Friday evening after markets have closed for the weekend. Exports are expected to contract -6.4% y/y while imports are expected to rise 1.4% y/y.

China reports official May PMI data Friday.Manufacturing PMI is expected to drop a couple of ticks to 49.9, while non-manufacturing is expected to remain steady at 54.3. Caixin PMI readings will be reported the week after, but it’s clear that the Q1 bump in the economy was a temporary one. More stimulus seems likely as the trade war stretches on.

Turkey reports Q1 GDP Friday, which is expected to contract -2.9% y/y vs. -3.0% in Q4. It also reports trade that same day, where a deficit of -$2.83 bln is expected. The recession is pushing down the external deficits. Yet high inflation and the weak lira should prevent the central bank from easing anytime soon. Next policy meeting is June 12, no change is expected then.

India reports Q1 GDP Friday, which is expected to grow 6.2% y/y vs. 6.6% in Q4. The RBI started an easing cycle this year and is likely to continue cutting rates. CPI rose 2.9% y/y in April, which is in the bottom half of the 2-6% target range. Next policy meeting is June 6 and another 25 bp cut to 5.75% seems likely.

Chile reports April IP Friday, which is expected to rise 2.2% y/y vs. -0.8% in March. Copper prices have fallen nearly 10% from the mid-April peak, and this is likely to put downward pressure on activity last month. Next policy meeting is June 7, and rates are likely to be kept steady then.

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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