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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM is likely to remain under pressure. Despite some signs of a slight thaw in US-China relations, a trade deal remains far off and so global growth and trade are likely to see continued downside risks.

Thailand reports Q2 GDP Monday, which is expected to grow 2.3% y/y vs. 2.8% in Q1.  The economy is clearly under pressure, both from global (trade war) and domestic (drought) factors.  Next Bank of Thailand meeting is September 25 and another cut then is possible.  Much will depend on global conditions then.

Chile reports Q2 GDP and current account data Monday.  Growth is expected at 1.9% y/y vs. 1.6% in Q1.  Yet the economy is coming under greater pressure, especially as copper prices continue to slide.  Next policy meeting is September 3 and the central bank has flagged a likely rate cut then.

Taiwan reports July export orders Tuesday, which are expected to contract -5.7% y/y vs. -4.5% in June.  July IP will be reported Friday, which is expected to contract -1.0% y/y vs. -0.4% in June.  The economy remains under pressure as regional headwinds build.  We see rising odds that the central bank will resume cutting rates at its next quarterly policy meeting in September.  The policy rate has been on hold since the last 12.5 bp cut in June 2016.

Korea reports trade data for the first 20 days of August Wednesday.  Like the rest of the region, the Korean economy remains under pressure.  If tensions with Japan worsen, then the outlook for exports and growth gets even worse.  Bank of Korea started the easing cycle with a 25 bp cut in July.  Next policy meeting is August 29 and another cut then is possible.

South Africa reports July CPI Wednesday, which is expected to rise 4.4% y/y vs. 4.5% in June.  If so, inflation would move into the bottom half of the 3-6% target range.  SARB started the easing cycle with a 25 bp cut to 6.5% in July.  Next policy meeting is September 19 and much will depend on the rand and global conditions then.

Poland reports July industrial and construction output and PPI Wednesday.  Real retail sales will be reported Thursday, which are expected to rise 7.4% y/y vs. 3.7% in June.  Central bank minutes will also be released Thursday.  It has maintained its forward guidance for no rate hikes through 2021, and lately has introduced the possibility of rate cuts if the economy slows significantly.

Bank Indonesia meets Thursday and is expected to keep rates steady at 5.75%.  however, the market is split.  Of the 16 analysts polled by Blomberg 9 see steady rates and 7 see a 25 bp cut.  While we think the bank intended to follow up its July cut with another one this month, the weak rupiah is problematic and so look for no cut.

Mexico reports mid-August CPI Thursday, which is expected to rise 3.5% y/y.  If so, inflation would move further into the 2-4% target band.  Banco de Mexico just delivered a dovish surprise last week and cut rates 25 bp to 8.0%.  Final Q2 GDP and current account data will be reported Friday.

Brazil reports mid-August IPCA inflation Thursday, which is expected to rise 3.32% y/y.  If so, inflation would remain in the bottom half of the 2.75-5.75% target range.  COPOM cut rates 50 bp last month but may find it difficult to repeat this at the September 18 meeting if BRL remains under pressure.

Singapore reports July CPI Friday, which is expected to rise 0.5% y/y vs. 0.6% in June.  The MAS does not have an explicit inflation target.  However, low price pressures should allow it to ease at its October policy meeting by adjusting its S$NEER trading band.

Macro Currencies Investor Insights Global

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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