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Emerging Markets: Week Ahead Preview

Stock Markets

EM FX ended the week under pressure. News of the Venezuela debt restructuring was digested well, but sentiment went south as the day wore on.  Weakness was concentrated in the weakest links TRY, BRL, RUB, and ZAR, while MXN and COP were dragged along for the ride.  We see EM selling pressures persisting into 2018.

Stock Markets Emerging Markets, November 04

Stock Markets Emerging Markets, November 04

Source: economist.com - Click to enlarge

Czech Republic

Czech Republic reports September industrial and construction output, retail sales Monday.  Some slowing is expected.  It then reports October CPI Thursday, with inflation expected to remain steady at 2.7%.  If so, it would still be above the 2% target and supports the case for further tightening after the CNB hiked 25 bp last week.

Philippines

Philippines reports October CPI Monday, which is expected to rise 3.5% y/y vs. 3.4% in September.  If so, inflation would still be in the upper half of the 2-4% target range.  Yet the central bank meets Thursday and is expected to keep rates steady at 3%.  September trade will be reported Friday.

Hungary

Hungary reports September retail sales Tuesday, which are expected to rise 5.1% y/y vs. 4.7% in August.  It then reports September IP (8% y/y WDA expected) and trade (EUR845 mln expected) Wednesday.  October CPI will be reported Thursday, with inflation seen easing to 2.3% y/y from 2.5% in September.  If so, this would still be in the lower half of the 2-4% target range.

Taiwan

Taiwan reports October CPI and trade Tuesday.  The central bank does not have an explicit inflation target, but low inflation gives it leeway to keep rates on hold well into 2018.  Export orders have slowed a bit in recent months, and so exports bear watching.

Chile

Chile reports October trade Tuesday.  It then reports October CPI Wednesday, which is expected to rise 1.6% y/y vs. 1.5% in September.  If so, inflation would still be in the bottom half of the 2-4% target range.  The central bank has signaled that the easing cycle is over.  However, low inflation gives it leeway to cut again if the economic outlook worsens.

China

China reports October foreign reserves Tuesday, which are expected to tick higher to $3.118 bln.  Chine then reports October trade Wednesday, where exports are expected to rise 7% y/y and imports by 16.8% y/y.  China then reports October CPI and PPI Thursday.  The former is expected to rise 1.7% y/y and the latter by 6.6% y/y.

Thailand

Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.5%.  CPI rose only 0.9% y/y in October, still below the 1-4% target range.  We see steady rates well into 2018.

Poland

National Bank of Poland meets Wednesday and is expected to keep rates steady at 1.5%.  CPI rose 2.1% y/y in October, which is still in the bottom half of the 1.5-3.5% target range.  Still, with the economy so robust, we do not think the central bank can keep rates steady through 2018, as it plans.

Russia

Russia reports October CPI Wednesday, which is expected to rise 2.8% y/y vs. 3.0% in September.  The central bank cut rates 25 bp last month, and signaled further cuts ahead.  Next policy meeting is December 15and another 25 bp cut to 8.0% is likely.

Turkey

Turkey reports September IP Wednesday.  The economy is picking up, and high inflation warrants some tightening from the central bank.  The lira has responded poorly to the decision to keep rates steady last month, but the central bank is under pressure not to tighten again.  The next policy meeting is December 14.

Malaysia

Bank Negara meets Thursday and is expected to keep rates steady at 3%.  Ahead of the decision, Malaysia reports September IP (6.6% y/y expected) and manufacturing sales.  Inflation was 4.3% y/y in September.  However, the central bank does not have an explicit inflation target and so it can keep policy steady ahead of elections next year.

South Africa

South Africa reports September manufacturing production Thursday, which is expected to rise 0.5% y/y vs. 1.5% in August.  The economy remains weak, but the soft rand may prevent the SARB from cutting at its November 23 policy meeting.  A lot can happen between now and then.

Mexico

Banco de Mexico meets Thursday and is expected to keep rates steady at 7%.  Ahead of the decision, Mexico reports October CPI.  Recent peso weakness is concerning, and could reverse some of the recent drop in inflation.  September IP will be reported Friday.

Peru

Peru central bank meets Thursday and is expected to cut rates 25 bp to 3.25%.  Inflation fell sharply in October to 2% y/y, right on target.  However, the sluggish economy warrants further easing.

Brazil

Brazil reports October IPCA inflation Friday, which is expected at 2.75% y/y vs. 2.54% in September.  Inflation has bottomed, which supports COPOM’s signal that is slowing the easing cycle and nearing its end.  We look for one last 50 bp cut to 7% on December 6.

GDP, Consumer Inflation and Current Accounts

The Economist poll of forecasters, October 2017

The Economist poll of forecasters, October 2017 Source: economist.com - Click to enlarge

 

 

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About Win Thin
Win Thin
Win Thin is a senior currency strategist with over fifteen 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. He received an MA from Georgetown University in 1985 and a B.A. from Brandeis University 1983. Feel free to contact the Zurich office of BBH
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