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Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

US-China trade tensions are likely to remain high. China reported slightly firmer than expected September PMI readings over the weekend. With more tariffs going into effect in September and again in December, however, the economy is still facing stiff headwinds. This will continue to have negative knock-on effects on the rest of EM.

South Africa reports August money and credit, budget, and trade data Monday. The economy remains sluggish and yet SARB kept rates steady at its September meeting. Next policy meeting is November 21 and much will depend on external conditions and the rand. By that time, the mid-term budget review will give investors a good idea of how tight fiscal policy will get.

Turkey reports August trade Monday, with a deficit of -$2.5 bln expected. September CPI will be reported Thursday, which is expected to rise 9.8% y/y vs. 15.01% in August. If so, inflation would be the lowest since July 2017 but still well above the 3-7% target range. Next policy meeting is October 24. If inflation falls to single digits, we would expect another large cut of 300-400 bp from the current 16.5%.

Chile reports August IP Monday, which is expected to rise 2.0% y/y vs. 2.6% in July. August GDP proxy will be reported Tuesday. Retail sales will be reported Thursday and are expected to rise 1.2% y/y vs. 1.8% in July. The economy is sluggish, which is why the bank has cut rates 100 bp since it started the easing cycle in June. Consensus sees another 50 bp of easing by early 2020.

Brazil reports August consolidated budget data Monday, with a -BRL15.5 bln primary deficit expected. August IP and September trade will be reported Tuesday. While pension reform winds its way through Congress, the economy remains sluggish. Next COPOM meeting is October 30 and another 50 bp cut to 5.0% is expected. Market is also pricing in a last 25 bp cut at the December 11 meeting.

Colombia central bank releases its minutes Monday. Colombia then reports September CPI Saturday, which is expected to rise 3.76% y/y vs. 3.75% in August. If so, inflation would remain near the top of the 2-4% target range. Yet headwinds to the economy should keep the central bank on hold for now. Next policy meeting is October 31, no change is expected then.

Korea reports September CPI and trade Tuesday. CPI is expected to fall -0.3% y/y vs. flat in August, while exports are expected to contract -10.0 y/y vs. -13.6% in August. BOK last cut rates in July but further easing is clearly needed. Next policy meeting is October 15 and another 25 bp cut seems likely.

Thailand reports September CPI Tuesday, which is expected to rise 0.41% y/y vs. 0.52% in August. If so, inflation would be the lowest since December 2017 and below the 1-4% target range. BOT cut rates in August and then delivered a dovish hold in September. Next policy meeting is November 6 and another 25 bp cut to 1.25% is possible.

Indonesia reports September CPI Tuesday, which is expected to rise 3.52% y/y vs. 3.49% in August. If so, inflation would be the highest since January but still near the middle of the 2.5-4.5% target range. Next policy meeting is October 24 and another 25 bp cut to 5.0% is likely.

Poland reports September CPI Tuesday, which is expected to rise 2.7% y/y vs. 2.9% in August. If so, inflation would move closer to the middle of the 1.5-3.5% target range. National Bank of Poland then meets Wednesday and is expected to keep rates steady at 1.5%. While the central bank has said that rates could move either way, we think it is too early to think about potential easing.

Hungary reports August retail sales Thursday, which are expected to rise 5.6% y/y vs. 6.4% in July. The economy is softening, which led the central bank to start reversing some of its tightening measures by boosting the amount of excess liquidity in the system. Next policy meeting is October 22 and further easing is possible then.

Philippines reports September CPI Friday, which is expected to rise 1.0% y/y vs. 1.7% in August. If so, inflation would be the lowest since May 2016 and further below the 2-4% target range. Next policy meeting is November 14 and another 25 bp cut to 3.75% is expected then.

Reserve Bank of India meets Friday and is expected to cut rates 25 bp. CPI rose 3.21% y/y in August, the highest since October but still well within the 2-6% target range. The economy is sluggish, and so policymakers will inject monetary and fiscal stimulus whenever possible.

Russia reports September CPI Friday, which is expected to rise 4.0% y/y vs. 4.3% in August. If so, inflation would be the lowest since November and right at the 4% target. Next policy meeting is October 25 and no change is expected. However, we see a chance of a dovish surprise.

Taiwan reports September CPI Saturday, which is expected to rise 0.60% y/y vs. 0.43% in August. The central bank does not have an explicit inflation target. However, low price pressures should allow it to keep rates steady well into 2020.

Check out the EM Preview for the Week Ahead and other musings & insights on Emerging Markets at BBH’s “Mind on the Markets” blog.

Global Policy & Government Economics and Markets Macro

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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