What’s Up for the Emerging Markets?

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EM ended last week on a firm note, helped by the weaker than expected US Q2 GDP report as well as the small bounce in oil.  With the RBA and BOE expected to ease this week, the global liquidity backdrop remains favorable for EM and “risk.”  US jobs report Friday will be very important for EM going forward.

We get our first glimpse of the Chinese economy for July with the PMI readings this week.  EM CPI data this week should underscore the low global inflation theme.  More EM central banks are likely to join the easing parade in H2.


EM ended last week on a firm note, helped by the weaker than expected US Q2 GDP report as well as the small bounce in oil.  With the RBA and BOE expected to ease this week, the global liquidity backdrop remains favorable for EM and “risk.”  US jobs report Friday will be very important for EM going forward.

We get our first glimpse of the Chinese economy for July with the PMI readings this week.  EM CPI data this week should underscore the low global inflation theme.  More EM central banks are likely to join the easing parade in H2.

Korea reports July trade and June current account data Monday.  Exports are expected at -4.4% y/y and imports at -10.6% y/y.  It then reports July CPI Tuesday, which is expected to remain steady at 0.8% y/y.  This remains well below the 2.5-3.5% target range.  BOK last cut rates 25 bp to 1.25% in June.  We do not think it was “one and done” and so we look for another cut in Q3.  The next policy meeting is August 11.

China reports official and Caixin July manufacturing PMI readings Monday.  The former is expected at 50.0 and the latter at 48.8.  These will be the first snapshots of the Chinese economy in July.  For now, markets seem comfortable with the outlook but further slowing could be problematic. 

Thailand reports July CPI Monday, which is expected to rise 0.5% y/y vs. 0.38% in June.  This remains well below the 1-4% target range.  Bank of Thailand meets Wednesday and is expected to keep rates steady at 1.5%.  The bank has been on hold since the last 25 bp cut back in April 2015, but we think a cut in the policy rate is possible in H2.

Indonesia reports July CPI Monday, which is expected to rise 3.37% y/y vs. 3.45% in June.  This remains near the bottom of the 3-5% target range.  Bank Indonesia stood pat in July, but we think it will cut rates again at the August 18 meeting, when it also introduces a new benchmark policy rate.   

Mexico reports July PMI readings Monday.  It then reports July consumer confidence Thursday. The economy is sluggish, even as inflation remains below target.  We see no further tightening by Banco de Mexico this year.  The next policy meeting is August 11.

Brazil reports July trade Monday.  It then reports June IP Tuesday, which is expected at -6.3% y/y vs. -7.8% in May.  July FIPE inflation will be reported Wednesday.  COPOM next meets August 31.  Recent hawkishness from officials suggests that meeting is too early to start the easing cycle, with October 19 now more likely.

Hungary reports June retail sales Wednesday.  It then reports June IP Friday.  The real sector remains robust, but deflation risks persist.  Further easing, if needed, will likely take the form of unconventional measures instead of rate cuts.  The next policy meeting is August 23, no changes are expected then.

Turkey reports July CPI Wednesday, which is expected to rise 8.11% y/y vs. 7.64% in June.  This remains well above the 3-7% target range.  Yet the central bank is likely to come under greater pressure to ease, as Erdogan consolidates control after the failed coup attempt.  Next policy meeting is August 23.

Czech National Bank meets Thursday and is expected to keep rates steady at 0.05%.  Czech Republic then reports June retail sales Friday, which are expected to rise 7.6% y/y vs. 11.1% in May.  The real sector remains robust, and so the central bank’s forward guidance is likely to remain steady for now.

Taiwan reports July CPI Friday, which is expected to rise 1.1% y/y vs. 0.9% in June.  Even though the central bank does not have an explicit inflation target, low price pressures should allow it to continue easing with another 12.5 bp cut in late September.

The Philippines reports July CPI Friday, which is expected to rise 2.1% y/y vs. 1.9% in June.  This remains right at the bottom of the 2-4% target range.  After the central bank shifted to a new interest rate corridor and cut the policy rate to 3% in May, we think further easing (via a cut in the policy rate and/or in reserve requirements) seems likely in H2.  The next policy meeting is August 11.

Malaysia reports June trade Friday.  Lower oil prices will continue to weigh on the economy.  Real sector data have been softening, which helps explain the central bank’s surprise 25 bp rate cut to 3.0% in July.  The next policy meeting is September 7, and we think another cut is possible then.

Colombia reports July CPI Friday, which is expected to rise 8.77% y/y vs. 8.6% in June.  This is further above the 2-4% target range.  Last Friday, the central bank hiked rates 25 bp to 7.75%.  The next policy meeting is August 31, and the bank may be forced to hike again if the inflation trajectory does not improve.

Emerging Markets: Preview of the Week Ahead is republished with permission from Marc to Market

About Marc Chandler PRO INVESTOR

Head of Global Currency Strategy at Brown Brothers Harriman.