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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

The US-China trade war is extending and expanding. There is no longer any semblance of a truce, and this is unequivocally negative for EM. CNY, INR, SGD, MXN, and BRL are making new cycle lows, and many other EM currencies are likely to follow suit.

Singapore reports July IP and is expected to contract -4.9% y/y vs. -6.9% in June.  July CPI rose 0.4% y/y vs. 0.5% expected and 0.6% in June.  The MAS does not have an explicit inflation target.  However, low price pressures and weak growth should lead it to ease at its October policy meeting by adjusting its S$NEER trading band.

Brazil reports July current account and FDI data Monday.  Q2 GDP will be reported Thursday, with growth expected at 0.8% y/y vs. 0.5% in Q1.  Central government budget data will be reported Thursday, followed by consolidated budget data Friday.  CDI market is pricing in a 50 bp cut at the next COPOM meeting September 18, but a weak real would make this problematic.

Mexico reports July trade Tuesday, where a -$315 mln deficit is expected.  Banco de Mexico releases its quarterly inflation report Wednesday and its minutes Thursday.  Mid-August CPI came in at 3.29% y/y, the lowest since October 2016.  The peso has held up well since the surprise 25 bp cut on August 15.  As such, the bank will likely roll the dice again and cut 25 bp at the September 26 meeting.

National Bank of Hungary meets Tuesday and is expected to keep rates steady at 0.90%.  CPI rose 3.3% y/y in July, the lowest since February and nearing the center of the 2-4% target range.  The economy is showing signs of slowing and so we expect steady rates for the time being.

Bank of Israel meets Wednesday and is expected to keep rates steady at 0.25%.  CPI rose only 0.5% y/y in July, the lowest since May 2015 and well below the 1-3% target range.  Despite reports of a possible change in the FX intervention program, the shekel remains relatively firm and that will keep the central bank on hold for now.

Turkey reports July trade Thursday, where a deficit of -$3.2 bln is expected.  If so, the 12-month would fall further to -$26.4 bln.  Exports have slowed but imports have absolutely collapsed as the recession bites.  Markets are looking for another large rate cut when the central bank next meets September 12.

South Africa reports July PPI Thursday, which is expected to rise 5.3% y/y vs. 5.8% in June.  July CPI rose 4.0% y/y, lower than expected and matching the cycle lowest from January.  As such, we think the SARB is likely to cut rates again at the next policy meeting September 19.  South Africa then reports July money and private sector credit, trade, and budget data Friday.

Bank of Korea meets Friday and is expected to keep rates steady at 1.50%.  CPI rose 0.6% y/y in July, the lowest since April and well below the 2% target.  BOK just cut rates last month, but we see slight risks of a dovish surprise this week.  Ahead of the decision, Korea reports July IP and it is expected to contract -1.6% y/y vs. -2.9% in June.  August trade data will be reported Sunday local time.

Poland reports August CPI Friday, which is expected to rise 2.8% y/y vs. 2.9% in July.  If so, inflation would move toward the center of the 1.5-3.5% target range.  Minutes from the last policy meeting showed a 5-2 vote to keep rates steady, with the two dissents in favor of a 25 bp hike.  The economy is showing signs of slowing and so we expect steady rates at the next meeting September 11.

China reports official August PMI readings Saturday local time.  Manufacturing PMI is expected to remain steady at 49.7.  Further escalation of the US-China trade war is likely to keep the manufacturing sectors in both countries under pressure.  The yuan is trading at new lows for this move but we do not think policymakers will weaponize it with regards to trade tensions.

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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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