Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead
Win Thin, Global Head of Emerging Markets, Brown Brothers Harriman & Co.
Published: 13 May 2019 11:51
EM FX ended last week on a firm note on optimism that a trade deal will be reached. We think that optimism is misplaced and so look for EM weakness to resume this week. Indeed, rhetoric from both sides over the weekend suggest things will get worse before they get better.
Czech Republic reports April CPI Monday, which is expected to remain steady at 3.0% y/y. If so, inflation would remain at the top of the 1-3% target range. The central bank just hiked rates recently but signaled a pause ahead. Next policy meeting is June 26, no change is expected then. Q1 GDP will be reported Wednesday, which is expected to grow 2.4% y/y vs. 2.6% in Q4.
Turkey reports April current account Monday, which is expected at -$1.0 bln. If so, the 12-month total would collapse to -$13.3 bln, the lowest since December 2009. March IP will be reported Tuesday, which is expected to contract -4.4% y/y vs. -5.1% in February. Stealth measures to support the lira are unlikely to have much lasting impact. Reports that Turkey would no longer buy a Russian missile defense system were later denied by the government.
India reports April CPI Monday, which is expected to rise 2.99% y/y vs. 2.86% in March. If so, inflation would be in the bottom half of the 2-6% target range. WPI will be reported Tuesday which is expected to rise 3.0% y/y vs. 3.18% in March. If so, limited price pressures should allow the RBI to ease again at its next policy meeting June 6.
Brazil COPOM minutes will be released Tuesday. At last week’s meeting, COPOM saw balanced risks to inflation. We disagree and see upside risks, as IPCA inflation was 4.94% y/y in April. This was the highest since January 2017 and near the top of the 2.75-5.75% target range. Next COPOM meeting is June 19, and no change is expected then. However, we see risks of a hike materializing in H2.
Poland reports March trade and current account data Tuesday. National Bank of Poland meets Wednesday and is expected to keep rates steady at 1.5%. CPI rose 2.2% y/y in April, well in the bottom half of the 1.5-3.5% target range. Q1 GDP will be reported Wednesday, which is expected to grow 4.4% y/y vs. 4.9% in Q4
Colombia reports March IP and retail sales Tuesday. The former is expected to rise 3.5% y/y and the latter by 4.9% y/y. Q1 GDP will be reported Wednesday, which is expected to grow 3.0% y/y vs. 2.8% in Q4. The central bank just kept rates steady and said it saw no reason to move rates either way. As such, we see an extended hold. Next policy meeting is June 21, no change is expected then.
China reports April IP and retail sales Wednesday. The former is expected to rise 6.5% y/y and the latter by 8.6% y/y. Trade talks ended Friday with no breakthrough, and so we see downside risks for the mainland economy going forward. Talks will reportedly continue but no date has been scheduled yet. we remain pessimistic near term. Please see our recent MarketView piece on China for a deeper look at China (My Baby, Xi Wrote Me A Letter).
Indonesia reports April trade Wednesday. Bank Indonesia meets Thursday and is expected to keep rates steady at 6.0%. We see a slight chance of a dovish surprise. CPI rose 2.8% y/y in April, in the bottom half of the 2.5-4.5% target range. If we don’t get a hike this week, then one is likely June 20 or July 18.
Hungary reports Q1 GDP Wednesday, which is expected to grow 4.8% y/y vs. 5.1% in Q4. Central bank minutes will also be released that day. CPI rose 3.9% y/y in April, the highest since December 2012 and near the top of the 2-4% target range. This will surely test the bank’s resolve to keep policy loose. Next policy meeting is May 28, and we see chances of some modest tightening measures then.
Israel reports April CPI Wednesday, which is expected to rise 1.5% y/y vs. 1.4% in March. If so inflation would be the highest since December 2013 but still in the bottom half of the 1-3% target range. Next policy meeting is May 20, and no change is expected then. Israel reports Q1 GDP Thursday, which is expected to grow 2.9% annualized vs. 3.1% in Q4.
Argentina reports April CPI Wednesday, which is expected to rise 56.3% y/y vs. 54.7% in March. With nominal LELIQ rates around 72%, that would translate into a real rate of around 16%. While that should be enough to stabilize the peso, it’s too soon to say as the currency has already weakened nearly 1.5% this month.
Malaysia reports Q1 GDP Thursday, which is expected to grow 4.3% y/y vs. 4.7% in Q4. It also reports Q1 current account data that same day. Bank Negara just cut rates 25 bp to 3.0%, underscoring its growth concerns. Next policy meeting is July 9, and much will depend on the global backdrop.
Banco de Mexico meets Thursday and is expected to keep rates steady at 8.25%. April CPI rose 4.41% y/y, the highest since and further above the 2-4% target range. While some held out hope for an easing cycle to start this year, rising inflation is likely to push this into 2020.
Singapore reports April trade Friday, with NODX expected to contract -4.6% y/y vs. -11.7% in March. The economy remains sluggish. While the MAS does not have an explicit inflation target, low price pressures should allow it to remain on hold at the next semi-annual policy meeting in October.
About the Author
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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