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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

Last week’s dovish tilt by the ECB should have been EM-supportive. However, global trade tensions remain high despite the rebooted US-China talks in Shanghai this week and so we remain bearish on EM. China reports July PMI readings, and the first glimpse of the world’s second-largest economy in H2 are expected to show continued softness.

South Africa reports June money supply and private sector credit data Monday.  Both are expected to slow from May.  Q2 unemployment and June budget data will be reported Tuesday.  June trade will be reported Wednesday, where a ZAR4 bln surplus is expected.  The rand is likely to remain under pressure, as last week’s Eskom bailout (the second one) is likely to be the trigger for a Moody’s downgrade in H2.

Brazil reports June consolidated budget data Monday, where a -BRL11.4 bln primary deficit is expected.  The central government primary deficit came in at -BRL11.5 bln for the month, leading the 12-month total to fall to -BRL117.5 bln.  COPOM meets Wednesday and is expected to resume the easing cycle with a 25 bp cut to 6.25%.  However, the market is somewhat split and some look for a 50 bp cut and some for no cut.  June IP and July trade will be reported Thursday.

Korea reports June IP Tuesday, which is expected to contract -1.4% y/y vs. -0.2% in May.  July CPI and trade will be reported Thursday.  Inflation is expected at 0.8% y/y vs. 0.7% in June.  Exports are expected to contract -11.8% y/y and imports by -8.1% y/y.  The ongoing US-China trade war as well as rising Korea-Japan tensions are likely to remain headwinds on the economy.

China reports official July PMI readings Tuesday.  Manufacturing is expected at 49.6 and non-manufacturing at 54.0.  Caixin reports July manufacturing PMI Thursday, which is expected at 49.8 vs. 49.4 in June.  These will be first glimpses of July activity and are likely to show little improvement as the US-China trade war drags on.

Turkey reports June trade Wednesday, where a deficit of -$3.2 bln is expected.  The central bank also releases its quarterly inflation report that same day.  President Erdogan will clearly continue to push interest rates down, especially if the lira continue to hold up.  Next policy meeting is September 12, and another sizable cut is likely then.

Poland reports July CPI Wednesday, which is expected to remain steady at 2.6% y/y.  If so, inflation would remain in the bottom half of the 2-4% target range.  The central bank has maintained its forward guidance of no policy change through 2021.  Next policy meeting is September 11, no change is expected then.

Chile reports June manufacturing production Wednesday, which is expected to contract -1.2%y/y vs. +1.9% in May.  June retail sales will be reported Friday, which are expected to rise 0.3% y/y vs. 3.3% in May.  The economy remains weak.  The central bank remained on hold this month but signaled a likely cut at its next policy meeting September 3.

Mexico reports Q2 GDP Wednesday, which is expected to contract -0.4% y/y vs. +1.2% in Q1.   If so, this would be the first contraction since Q4 2009, and underscores just how shaky the fundamentals are getting.  Weakness in the economy is likely to push the central bank into cutting sooner rather than later, though much depends on the peso.  Next policy meeting is August 15, no change is expected then but there may be a subtle shift in messaging in order to set up eventual easing.

Indonesia reports July CPI Thursday, which is expected to rise 3.29% y/y vs. 3.28% in June.  If so, inflation would remain in the bottom half of the 2.5-4.5% target range.  Bank Indonesia just started an easing cycle and is likely to cut again at its next meeting August 22.

Thailand reports July CPI Thursday, which is expected to rise 1.02% y/y vs. 0.87 in June.  If so, inflation would remain near the bottom of the 1-4% target range.  Bank of Thailand is concerned about baht strength but has signaled that a rate cut is unlikely for now.  Next policy meeting is August 7, no change is expected then.

Czech National Bank meets Thursday and is expected to keep rates steady at 2.0%.  CPI rose 2.7% y/y in June, near the top of the 1-3% target range.  However, the economy is showing signs of cooling and so we expect steady rates into 2020.

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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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