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EM Preview for the Week Ahead

EM was mostly lower last week, as doubts crept in about the recent trade optimism. Some events also served as reminders of idiosyncratic EM risk that can’t be overlooked, such as downgrade risks (South Africa), failed oil auctions (Brazil), and violent protests (CLP). EM may remain on its back foot until we get further clarity on the US-China talks, but we remain confident in our call that a deal will be struck soon that lower existing tariffs. 


Mexico reports September IP Monday, which is expected to contract 1.7% y/y vs. -1.3% in August. The economy remains sluggish and so further stimulus will be seen. Banco de Mexico meets Thursday and is expected to cut rates 25 bp to 7.5%. Odds of significant fiscal stimulus are rising, especially as we get closer to mid-term elections in 2021. Fitch has already delivered the first blow with its downgrade to BBB in June, and others may follow suit if the fiscal outlook worsens.

Brazil reports September retail sales Wednesday, which are expected to rise 2.3% y/y vs. 1.3% in August. The real came under significant pressure last week due to the lack of foreign interest in pre-salt oil fields. Part of the problem is that COPOM continues to push interest rates down, leaving investors with very little cushion for unforeseen risks. Next policy meeting is December 11 and another 50 bp cut to 4.5% is expected. CDIE market is pricing one last 25 bp cut at the February 5 meeting.

Colombia reports September retail sales, trade, and IP Thursday. Q3 GDP will be reported Friday and growth is expected at 3.3% y/y vs. 3.0% in Q2. Political tensions are high after a bombing of a guerrilla camp left several minors dead. Defense Minister Botero resigned as a result and was replaced by General Luis Fernando Navarro.


Czech Republic reports October CPI Monday and inflation is expected to remain steady at 2.7% y/y. The central bank just delivered a hawkish hold last week. The vote was 5-2, with the two dissents in favor of a hike. Furthermore, the bank’s forecasts now imply tightening in Q4 and Q1 for a total of two 25 bp hikes. Q3 GDP will be reported Thursday and growth is expected to slow to 2.6% y/y from 2.8% in Q2. With the economy at risk of slowing further, we think the risks of rate hikes is overstated.

Turkey reports September current account Tuesday, which is expected at $2.1 bln vs. $2.6 bln in August. September IP will be reported Thursday, which is expected to rise 3.5% y/y vs. -3.6% in August. There remain headwinds on the economy and so the central bank is likely to deliver another large cut at the next policy meeting December 12. It has already cut rates by ten percentage points.

Israel reports October trade Wednesday. October CPI will be reported Friday and is expected to rise 0.5% y/y vs. 0.3% in September. If so, inflation would still be below the 1-3% target range. The central bank has hinted at the possibility of rate cuts but we do not think that will happen until 2020. Next policy meeting is November 25 and no change is expected then.  The central bank recently resumed its FX purchases, and so we see risks of a dovish surprise this month.

South Africa reports September retail sales Wednesday, which is expected to rise 1.9% y/y vs. 1.1% in August. The economy remains sluggish even as price pressures have fallen.  Next SARB policy meeting is November 21 and we think a rate cut is likely then.


China reports October money and loan data this week, but no date has been set. IP and retail sales will be reported Thursday and are expected to rise 5.4% y/y and 7.8% y/y, respectively. Trade data surprised to the upside last Friday, but downside risks persist until the trade war is resolved. Ove the weekend, CPI inflation came in higher than expected at 3.8% y/y, the highest since December 2012 and largely due to surging pork prices. PPI contracted a greater than expected -1.6% y/y, which points to disinflationary pressures in the pipeline.

Malaysia reports September IP and manufacturing sales Monday. Q3 GDP will be reported Friday and growth is expected to slow to 4.4% y/y from 4.9% in Q2. Bank Negara just left rates steady at 3.0% last week. However, if the slowdown persists, the bank is likely to shift to a more dovish stance and cut rates in 2020. Q3 current account data will also be reported Friday.

India reports September IP Monday, which is expected to contract -2.3% y/y vs. -1.1% in August. October CPI will be reported Wednesday, which is expected to rise 4.3% y/y vs. 3.99% in September.  WPI will be reported Thursday, which is expected to fall -0.22 y/y vs. +0.33% in September.  If the economy continues slow, downgrade pressures will grow as the fiscal numbers worsen.

Philippines central bank meets Thursday and is expected to keep rates steady at 4.0%. Even though a cut then is justified by low inflation (0.8% y/y in October), Governor Diokno signaled that rates would be on hold for the rest of the year. What happens next year will depend in large part on the global backdrop. If the slowdown deepens, we would expect the bank to shift to a more dovish mode in 2020.

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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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