Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM is likely to come under pressure this week if risk-off sentiment picks up from the Saudi bombings. The oil producing countries may outperform but we think the global backdrop for EM remains negative, especially as US-China relations remain in flux. While things are not getting worse, neither are they getting better. Meanwhile, markets are coming to grips with the fact that the Fed is unlikely to ease as aggressively as has been priced in.

China reports August IP and retail sales Monday. The former is expected to rise 5.2% y/y and the latter by 7.9% y/y, both accelerating from July. Working level teams from the US and China will meet this week to lay the groundwork for higher level talks planned in October.

Israel reports Q2 GDP Monday. Over the weekend, August CPI rose 0.6% y/y, as expected. This remains well below the 1-3% target range and justifies the central bank’s recent move to a more neutral stance. Next policy meeting is October 7, no change is expected then. Elections will be held Tuesday, with most polls showing Likud running neck and neck with Blue and White.

Russia reports August IP Monday, which is expected to rise 2.2% y/y vs. 2.8% in July. August real retail sales will be reported Wednesday, which are expected to rise 0.9% y/y vs. 1.0% in July. Central bank Governor Nabiullina recently said that monetary policy can currently do little to boost growth. That said, we expect the bank to cut rates again at the next policy meeting October 25.

Singapore reports August trade data Monday, with NODX expected to contract -10.9% y/y vs. -11.2% in July. Data continue to come in weak, which supports our view that the MAS will loosen policy at its semiannual policy meeting in October. Singapore may benefit from ongoing Hong Kong protests,

Colombia reports July IP Tuesday. July trade will be reported Wednesday. Last week, July manufacturing production and retail sales came in stronger than expected. However, downside risks remain in place and so rates are likely to remain on hold into next year. Next central bank policy meeting is September 23, no change is expected then.

South Africa reports August CPI and July retail sales Wednesday. CPI is expected to rise 4.2% y/y vs. 4.0% in July, while sales are expected to rise 2.6% y/y vs. 2.4% in June. SARB then meets Thursday and is expected to keep rates steady at 6.5%. A handful of analysts look for a 25 bp cut to 6.25%, and we see risks of a dovish surprise.

Brazil COPOM meets Wednesday and is expected to cut rates 50 bp to 5.5%. IPCA consumer inflation rose 3.4% y/y in August, in the bottom half of the 2.75-5.75% target range. Meanwhile, the economy remains sluggish. Markets are pricing in a 50 bp cut in Q4 that would take the policy rate down to 5.0%. This would be a risky move, as the risk premium paid for holding Brazil assets is nearly non-existent.

Bank Indonesia meets Thursday and is expected to cut rates 25 bp to 5.25%. A handful of analysts look for no cut. CPI rose 3.5% in August, right in the middle of the 2.5-4.5% target range. With growth expected to remain sluggish, we expect easing to continue into next year.

Taiwan central bank meets Thursday and is expected to keep rates steady at 1.375%. Taiwan reports August export orders Friday, which are expected to contract -2.6% y/y vs. -3.0% in July. The entire region continues to suffer from the US-China trade war. Until tariffs are eliminated, those negative impulses are likely to continue.

Poland reports August industrial output and PPI Thursday. Output is expected to rise 1.3% y/y and PPI by 0.8% y/y. August real retail sales will be reported Friday and are expected to rise 5.2% y/y vs. 5.7% in July. The central bank left rates steady at 1.5% last week and signaled a willingness to cut again if needed. Next policy meeting is October 2, no change is expected then.

Argentina reports Q2 GDP Thursday, which is expected to grow 0.4% y/y vs. -5.8% in Q1. If so, this would be the first y/y gain since Q1 2018. The economy is emerging from its second recession under Macri. Given the latest round of turmoil, it’s entirely possible that Argentina goes back into recession yet again. Q2 unemployment will also be reported Thursday.

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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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