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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM remains under severe pressure. The less dovish than expected Fed, renewed trade tensions, and a broad-based dollar rally have conspired to absolutely crush EM FX and equities. These drivers are likely to carry over into this week and so we remain bearish on EM.

Aug 5, 2019 // 8:51AM

Turkey reports July CPI Monday, which is expected to rise 16.90% y/y vs. 15.72% in June.  If so, it would be the first acceleration since March.  Yet that is unlikely to prevent the central bank from cutting rates again at the next policy meeting September 12.  June current account data will be reported Friday.

Colombia reports July CPI Monday, which is expected to rise 3.75% y/y vs. 3.43% in June.  If so, inflation would be the highest since December 2017 and near the top of the 2-4% target range.  However, the economy is slowing and so rates are likely to remain on hold for now.

Philippines reports July CPI Tuesday, which is expected to rise 2.3% y/y vs. 2.7% in June.  If so, inflation would be the lowest since December 2016 and near the bottom of the 2-4% target range. June trade will be reported Wednesday.  The central bank meets Thursday and is expected to cut rates 25 bp to 4.25%.  Q2 GDP will also be reported Thursday, with growth expected at 5.9% y/y vs. 5.6% in Q1.

Taiwan reports July CPI Tuesday, which is expected to rise 0.80% y/y vs. 0.86% in June.  The central bank does not have an explicit inflation target.  However, low price pressures should allow it to keep rates steady into next year.  July trade will be reported Wednesday, with exports expected to rise 1% y/y and imports by 0.7% y/y.

Brazil COPOM minutes will be released Tuesday.  The SELIC rate was cut 50 bp to 6.0% and the door left open to further cuts.  June retail sales will be reported Wednesday which are expected to rise 0.6% y/y vs. 1.0% in May.  July IPCA inflation will be reported Thursday and is expected at 3.29% y/y vs. 3.37% in June.  If so, inflation would move closer to the bottom of the 2.75-5.75% target range and support another rate cut at the next COPOM meeting September 18.

Reserve Bank of India meets Wednesday and is expected to cut rates 25 bp.  CPI rose 3.2% y/y in June, which is in the bottom half of the 2-6% target range.  June IP will be reported Friday, which is expected to rise 1.4% y/y vs. 3.1% in May.  With the economy remaining sluggish, we expect another rate cut at the October 4 meeting.

Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.75%.  CPI rose 1.0% y/y in July, right at the bottom of the 1-4% target range.  However, headwinds are growing and pressure will likely build on the BOT to cut rates.  The Finance Ministry expects to add fiscal stimulus this year.

Czech Republic reports June retail sales Wednesday, which are expected to rise 1.3% y/y vs. 2.3% in May.  The economy is slowing, which is why the central bank said it sees “slightly anti-inflationary” risks.  The bank has a neutral bias but we suspect it will eventually move to an easing bias in the coming months.  Next policy meeting is September 25, no change is expected then.

Hungary reports June IP Wednesday, which is expected to rise 6.0% y/y vs. 6.1% in May.  Central bank minutes will also be released Wednesday.  July CPI and June trade will be reported Thursday, with inflation expected to remain steady at 3.4% y/y. If so, it would remain well within the 2-4% target range.  Next policy meeting is August 27, no change is expected then.

Russia reports July CPI Wednesday, which is expected to remain steady at 4.7%.  Inflation is expected to move closer to the 4% target in H2 and so the easing cycle should continue.  Next policy meeting is September 6 and another 25 bp is expected then.  June trade will be reported Friday.

Chile reports July trade Wednesday.  July CPI will be reported Thursday and is expected to rise 2.1% y/y vs. 2.3% in June.  If so, inflation would be near the bottom of the 2-4% target range.  The central bank has signaled further easing is likely, and so we expect a 25 bp cut at the next policy meeting September 3.

China reports July trade Thursday.  Exports are expected to contract -1.0% y/y and imports by -8.5% y/y.  July CPI and PPI will be reported Friday.  Both are expected to remain steady at 2.7% y/y and flat y/y, respectively.

Mexico reports July CPI Thursday, which is expected to rise 3.76% y/y vs. 3.95% in June.  If so, inflation would move further within the 2-4% target range.  While this should allow the central bank to contemplate the start of an easing cycle, recent peso weakness is problematic.  Next policy meeting is August 15, no change is expected then.  June IP will be reported Friday.

Peru central bank meets Friday and is expected to keep rates steady at 2.75%.  CPI rose 2.1% y/y in July, near the middle of the 1-3% target range.  The economy is showing signs of weakness, which should keep the central bank on hold this year.

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