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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

All eyes are on the Fed and we suspect it will stay true to its message of steady rates until the economic outlook worsens enough to warrant easing. In other words, the Fed is unlikely to be as dovish as the market hopes and so the dollar should benefit. Elsewhere, US-China trade tensions remain high and show no signs of letting up. The backdrop remains EM-negative.

Singapore reported May trade data. NODX contracted -15.9% y/y vs. -16.5% expected and -10% in April. Regional trade continues to be impacted by the US-China trade tensions. The MAS does not have an explicit inflation target but low price pressures and the weak economic outlook argues for steady policy at its semiannual meeting in October.

Turkey reports April IP Tuesday, which is expected to contract -2.2% y/y. The economy remains weak and inflation is finally easing. The central bank flagged potential easing when it removed the language pledging to “maintain the tight monetary stance” at its meeting last week. Next policy meeting is July 25 and whether it cuts then will depend in large part on how the lira is trading.

South Africa reports May CPI Wednesday, which is expected to remain steady at 4.4% y/y. If so, inflation would remain near the center of the 3-6% target range. SARB next meets July 18 and it’s possible that it begins an easing cycle then. Much will depend on how the rand is trading.

Argentina reports Q1 GDP Wednesday, which is expected to contract -5.7% y/y vs. -6.2% in Q4. Inflation is starting to show signs of moderating, allowing rates to edge lower. However, the economy is unlikely to recover before the October election. Macri’s reelection is the key driver for Argentina’s medium-term outlook.

Brazil COPOM meets Wednesday and is expected to keep rates steady at 6.5%. IPCA inflation was 4.3% y/y in May, near the middle of the 2.75-5.75% target range. With the economy remaining sluggish, markets are once again pricing in increased odds that the next move will be a rate cut, not hike.

Bank Indonesia meets Thursday and is expected to keep rates steady at 6.0%. However, a handful of analysts see a 25 bp cut to 5.75%. CPI rose 3.3% y/y in May, the highest since April 2018 and accelerating for a second straight month. Still, inflation remains within the 2-4% target range and so we see a small chance of a dovish surprise.

Taiwan central bank meets Thursday and is expected to keep rates steady at 1.375%. CPI rose 0.9% y/y in May. While the central bank does not have an explicit inflation target, low price pressures should allow it to keep rates steady this year. May export orders will be reported then too and are expected to contract -6.6% y/y vs. -3.7% in April.

Philippines central bank meets Thursday and is expected to cut rates 25 bp to 4.25%. CPI rose 3.2% y/y in May, accelerating for the first time since September but still near the middle of the 2-4% target range. Central bank Governor Diokno has promised more easing and we take him at his word. Reserve requirements may also be cut this week.

Korea reports trade data for the first 20 days of June Friday. This will be the first glimpse of global economic activity in June and it won’t be pretty. US-China trade tensions continue to weigh on trade, with no near-term relief in sight. Due to building headwinds, the BOK is likely to remain on hold this year. Next policy meeting is July 17 and no change is expected then.

Poland reports May industrial output and PPI Friday.The former is expected to rise 8.0% y/y and the latter by 1.6% y/y, both slowing from April. Central bank minutes will also be released that day. With inflation creeping higher, it will get harder and harder for the bank to keep its pledge of steady rates through 2021.

Colombia central bank meets Friday and is expected to keep rates steady at 4.25%. CPI rose 3.3% y/y in May, well within the 2-4% target range. Meanwhile, the economy remains soft and lower oil prices are adding to the headwinds. We see steady rates through 2019.

Macro Global Policy & Government

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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