Call us on
+44 (0) 207 045 0920

Global

Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead

EM got some traction last week as the dollar came under renewed pressure. However, the global backdrop remains negative for EM. US-China trade talks this week are unlikely to yield any progress, which means the next round of tariffs will go into effect mid-October. While odds of a Fed rate cut this month have risen, we do not think the positive liquidity story will outweigh the negative global growth story for EM.

ASIA

China reports September money and new loan data this week, but no date has been set. The economy is likely to continue slowing as the trade war drags on. We see more stimulus ahead but believe the PBOC will refrain from outright rate cuts for the time being. Meanwhile, China officials travel to Washington Thursday for two days of trade talks. We do not expect any breakthroughs and so the next round of (delayed) US tariffs should kick in mid-October.

Singapore reports Q3 GDP this week but no date has been set. Growth is expected at 0.2% y/y vs. 0.1% in Q2. MAS typically holds its semiannual policy meeting that same day. The MAS does not have an explicit inflation target, but low price pressures should lead it to ease policy by adjusting its S$NEER trading band. August retail sales will be reported Friday and are expected to contract -4.9% y/y vs. -1.8% in July.

Taiwan reports September trade Monday. Exports are expected to rise 1.1% y/y while imports are expected to contract -4.0% y/y. Korea reported dismal trade numbers for September and so we see downside risks here. Also, Taiwan export orders suggest little relief over the next six months.

EMEA

Czech Republic reports August construction and industrial output and trade Monday. Retail sales will be reported Tuesday, which are expected to rise 3.6% y/y vs. 6.2% in July. September CPI will be reported Thursday and is expected to remain steady at 2.9% y/y. If so, inflation would remain just below the top of the 1-3% target range. For now, the central bank is on hold. Next policy meeting is November 7, no change is expected then.

Hungary reports August IP Monday, which is expected to rise 4.9% y/y WDA vs. 8.7% in July. September CPI will be reported Tuesday and is expected to drop a tick to 3.0% y/y. If so, inflation would be at the center of the 2-4% target range. For now, the central bank is on hold. Next policy meeting is October 22, and further unwinding of recent tightening seems likely. August trade will be reported Wednesday.

Bank of Israel meets Monday and is expected to keep rates steady at 0.25%. CPI rose 0.6% y/y in August, below the 1-3% target range. While the bank shifted to an easing bias last meeting, we think it is on hold for now. However, we would not rule out a start to an easing cycle if the economy were to slow significantly.

South Africa reports August manufacturing production Thursday, which is expected to contract -1.5% y/y vs. -1.1% in July. The economy remains weak, making it more confounding that SARB didn’t cut rates at its last meeting. Next policy meeting is November 21. If the economic outlook hasn’t improved, we see chances of a rate cut then.

LATIN AMERICA

Chile reports September trade Monday, where a -$289 mln deficit is expected. CPI will be reported Tuesday and inflation is expected to rise a tick to 2.4% y/y. If so, inflation remain in the bottom of the 2.4% target range. For now, the central bank is on hold. Next policy meeting is October 23, no change is expected then.

Mexico reports September CPI Wednesday and is expected to rise 2.99% y/y vs. 3.16% in August. If so, inflation would move just below the centre of the 2.4% target range. For now, the central bank is likely to continue easing. Central bank minutes will be released Thursday. Next policy meeting is November 14 and another 25 bp cut is expected then. August IP will be reported Friday and is expected to contract -2.0% y/y vs. -1.7% in July.

Brazil reports September IPCA inflation Wednesday and is expected to rise 3.00% y/y vs. 3.43% in August. If so, inflation would move further towards the bottom of the 2.75-5.75% target range. For now, the central bank is likely to continue easing. Next COPOM meeting is October 30 and another 5p bp cut to 5.0% is expected then. August retail sales will be reported Friday and are expected to rise 1.8% y/y vs. 4.3% in July.

Peru central bank meets Thursday. The market is evenly split between no cut and a 25 bp cut to 2.25%. CPI rose 1.9% y/y in September, in the bottom half of the 1-3% target range. For now, we think the central bank is on hold but low price pressures will allow it to cut rates later this year if the economy slows significantly.

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

Recommended Stories