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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM FX was mixed last week despite the dovish signals from the Fed’s Powell. Weak data from emerging Asia support the notion that the ongoing US-China trade war will continue to weigh on global growth and trade, which is negative for EM. We remain cautious on EM, especially given our less dovish take on the Fed.

China reports June IP, retail sales, and Q2 GDP Monday.IP is expected to pick up to 5.2% y/y, while retail sales are expected to slow to 8.5% y/y. Q2 GDP is also seen slowing to 6.2% y/y. US-China relations continue to fluctuate, with Trump complaining last week that China hasn’t met its promise to buy more US agricultural goods. China officials have declined to confirm that promise and there was no official communique to emerge from the Trump-Xi meeting.

Poland reports May trade and current account data Monday. June industrial output and PPI will be reported Thursday, with both expected to slow significantly from May. June real retail sales will be reported Friday, which are expected to rise 3.8% y/y vs. 5.6% in May. The central bank has maintained its ultra-dovish forward guidance of steady rates through 2021. Next policy meeting is September 11, no change is expected then.

Colombia reports May manufacturing production and retail sales Monday. The former is expected to rise 4.2% y/y and the latter by 5.0% y/y. While inflation remains in the top half of the 2-4% target range, the sluggish economy should keep rates on hold in H2. Next central bank meeting is July 26, no change is expected then.

Israel reports June CPI Monday, which is expected to rise 1.2% y/y vs. 1.5% in May. If so, inflation would move closer to the bottom of the 1-3% target range. Next central bank meeting is August 29, no change is expected then.

Argentina reports June CPI Tuesday, which is expected to rise 2.6% m/m vs. 3.1% in May. If so, the y/y rate would slow to 54.8% y/y. This would be the lowest since March and the first y/y deceleration since December. However, the bank should not risk any sort of premature easing. Lower inflation and a stable peso should be helpful for Marci’s reelection chances this fall.

Singapore reports June trade Wednesday. NODX are expected to contract -9.1% y/y vs. -15.9% in May. After the shock -3.4% SAAR contraction in Q2 GDP reported last week, markets are bracing for weak data ahead for the entire region. MAS is likely to keep policy steady at its semiannual meeting in October, but we think risks of a dovish surprise are building.

South Africa reports May retail sales Wednesday, which are expected to rise 1.7% y/y vs. 2.4% in April. The economy remains weak, while inflation is right at the center of the 3-6% target range. SARB meets Thursday and is expected to start the easing cycle with a 25 bp cut to 6.5%. The last move was a 25 bp hike back in November.

Bank of Korea meets Thursday and the market is split between no move and a 25 bp cut. CPI rose 0.7% y/y in June, well below the 2% target. The economy remains sluggish, leading most to expect the BOK to start an easing cycle soon. If not this week, then a cut at the next meeting August 30 seems very likely. The last move was a 25 bp hike back in November.

Bank Indonesia meets Thursday and is expected to start the easing cycle with a 25 bp cut to 5.75%. CPI rose 3.3% y/y in June, below the 3.5% target but within the 2.5-4.5% target range. The bank hiked rates 175 bp last year and so we believe that a cut this week would be the start of an extended easing cycle.

Chile central bank meets Thursday and is expected to keep rates steady at 2.5%. CPI rose 2.8% y/y in June, below the 3% target but within the 2-4% target range. The surprise 50 bp cut last month took back all of the bank’s previous tightening cycle. We cannot rule out further easing, but this month seems to soon.

Global Macro Policy & Government 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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