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EM Preview for the Week Ahead

EM currencies took advantage of broad dollar weakness against the majors last week, with most gaining against the greenback. Yet the week ended on a bit of a risk-off note as concerns intensified about the resurgent virus and the impact on the still-weak global economy. This sentiment may carry over into this week as markets await final July global PMI readings earlier in the week and key US jobs data Friday.

AMERICAS

Brazil reports July trade data Monday. June IP will be reported Tuesday and is expected to contract -9.9% y/y vs. -21.9% in May. COPOM meets Wednesday and is expected to cut rates 25 bp to 2.0%. July IPCA inflation will be reported Friday and is expected at 2.31% y/y vs. 2.13% in June. If so, inflation would be highest since April but still well below the 2.5-5.5% target range. The bank has signaled this would be the final cut, but we cannot rule out further easing in light of the economic conditions.

Colombia reports July CPI Wednesday. Headline is expected to rise 1.79% y/y vs. 2.19% in June. If so, inflation would be lowest since November 2013 and would move below the 2-4% target range. The bank just delivered a 25 bp cut to 2.25% last week and signaled further easing was likely. Next policy meeting is August 28 and another 25 bp cut is expected then.

Mexico reports July CPI Friday. Headline is expected at 3.62% y/y vs. 3.33% in June. If so, inflation would be highest since February but still within the 2-4% target range. Next policy meeting is August 13 and another 50 bp cut to 4.5% is expected then. Deputy Governor Esquivel said last week that the bank may have room for several more rate cuts this year, noting that he believes the recent uptick in inflation was unlikely to persist.

EUROPE/MIDDLE EAST/AFRICA

Central Bank of Russia releases its quarterly monetary policy report Monday. July CPI will then be reported Wednesday. Headline is expected to rise 3.4% y/y vs. 3.2% in June. If so, inflation would be highest since November but still below the 4% target. The bank just delivered a smaller than expected 25 bp cut in July but signaled further easing was possible. Next policy meeting is September 18 and another 20 bp cut is expected.

Turkey reports July CPI Tuesday. Headline is expected to rise 12.10% y/y vs. 12.62% in June. If so, inflation decelerate for the first time since April but would still be well above the 3-7% target range. Next policy meeting is August 20 and no change is expected then. However, the central bank’s updated inflation forecasts in its latest quarterly inflation report were too optimistic and we think this signals an underlying desire to eventually restart the easing cycle.

Czech Republic reports June retail sales Wednesday. Headline sales are expected to be flat y/y vs. -12.2% in May. Czech National Bank meets Thursday and is expected to keep rates steady at 0.25%. That same day, June trade, construction, and industrial output will be reported. The recovery in Western Europe should help the Eastern bloc recover in H2, but the path will be uneven.

ASIA

Caixin July China manufacturing PMI will be reported Monday. It is expected to drop a tick to 51.1. Note official manufacturing PMI came in last week at 51.1 vs. 50.8 expected. Caixin then reports services (57.9 expected) and composite readings Wednesday. Here, the official non-manufacturing PMI came in last week at 54.2 vs. 54.5 expected. July trade and Q2 current account data will be reported Friday. Exports are expected to contract -1.2% y/y and imports are expected to rise 1.0% y/y.

Indonesia reports July CPI Monday. Headline is expected to rise 1.72% y/y vs. 1.96% in June. If so, inflation would be lowest since May 2000 and further below the 2.5-4.5% target range. Next policy meeting is August 19 and another 25 bp cut to 3.75% is expected. Q2 GDP will be reported Wednesday, which is expected to contract -3.49% q/q vs. -2.41% in Q1. With the economy so weak, we believe the easing cycle will continue through much of H2.

Korea reports July CPI Tuesday. Headline is expected to rise 0.4% y/y vs. flat in June. If so, inflation would be highest since March but still well below the 2% target. Over the weekend, July trade data was reported. Next policy meeting is August 27 and no change is expected then. The bank has said unconventional policies may be necessary but has given no further details. We hope that some sort of hint will be given at this meeting.

Bank of Thailand meets Wednesday and is expected to keep rates steady at 0.50%. A couple of analysts look for a 25 bp cut. That same day, July CPI will be reported and headline is expected to fall -1.48% y/y vs. -1.57% in June. If so, deflation would persist for the fifth straight month and would be well below the 1-4% target range.

Philippines reports July CPI and June trade Wednesday. Headline is expected to remain steady at 2.5% y/y, the highest since March but still near the bottom of the 2-4% target range. Exports are expected to contract -26% y/y and imports by -32% y/y. Next policy meeting is August 20 and another 25 bp cut to 2.0% is expected then. Q2 GDP will be reported Thursday, which is expected to contract -9.2% y/y vs. -0.2% in Q1 and -7.3% q/q vs. -5.1% in Q1.

Reserve Bank of India meets Thursday and is expected to cut rates 25 bp to 3.75%. However, the market is split. Of the 18 analysts polled by Bloomberg, 8 see no change, 9 see a 25 bp cut, and 1 sees a 50 bp cut. Inflation was 6.09% in June, the lowest since March but still above the 2-6% target range. However, the weak economy is likely to keep the RBI in dovish mode and further easing seems likely.

Full story here
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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