Emerging Markets On An Uneven Footing

Emerging markets are starting the week on an uneven footing, caught between the rebound in risk appetite and the broad dollar appreciation trend. The latter refers to the risk that EM currencies will be washed out together with major currencies as the dollar gains. We think this is a genuine concern, but more relevant for the high beta currencies, ZAR and TRY, in particular. MXN and INR are also at risk in the short-term, but we think improving fundamentals and policy dynamics will eventually win out.

Singapore reports July IP Tuesday. While the PMI reading has improved lately, IP readings have not yet reflected this. If real sector data continue to pick up, MAS will see less need to ease policy at its October meeting.

Poland reports July retail sales Tuesday, expected to rise 2.1% y/y vs. 1.2% in June. The economy is in fairly good shape, but we know policymakers are concerned about the euro zone economy as well as the Russian situation.

South Africa reports Q2 GDP Tuesday. With price pressures easing and the real economy still weakening, we see no rationale for SARB to hike rates again at its next meeting September 18. It then reports July money and credit data Friday. Later that day, South Africa also reports July trade and budget data.

Hungary central bank meets Tuesday and is expected to keep rates steady at 2.10%. The recovery remains on track, and so the easing cycle has ended. The y/y inflation rate should move further into positive territory in H2 due to low base effects from 2013. However, we do not expect any tightening until well into 2015.

Turkey central bank meets Wednesday. Turkey then reports July trade Friday. The external accounts are in decent shape, but inflation remains too high. Another cut now would surely test the market’s patience.

Mexico reports July trade Wednesday. Export growth has picked up recently, reflecting the improved US economic outlook. This should continue in H2. Mexican import demand is also starting to pick up, which could signal improved domestic demand.

The Philippines reports Q2 GDP Thursday. Growth has slowed three straight quarters now, but remains fairly robust at 5.7% y/y in Q1. Price pressures are rising, and so the central bank felt comfortable hiking the policy rate 25 bp to 3.75% in July. We do not expect an aggressive tightening cycle, but more hikes are likely ahead.

Brazil reports August IGP-M wholesale inflation Thursday. It then reports Q2 GDP and July fiscal data on Friday. The monthly GDP proxy came in as expected for June, but it was awful nonetheless. Data point to Q2 GDP contracting -1.5% y/y. Over H1, growth of only 0.2% will likely be seen.

Korea reports July IP Thursday. Bank of Korea cut rates 25 bp this month, even as the recovery continues at a decent pace and the won has been softening too. While the q/q rate slowed to 0.6% in Q2, GDP still rose 3.6% y/y. We do not foresee many rate cuts ahead.

India reports Q2 GDP Friday. Growth should start to pick up in H2, though the monsoon season holds some downside risks for the economy.

Colombia central bank meets Friday and is expected to hike rates 25 bp to 4.50%. The economic data remain strong, but price pressure are leveling out within the target range and so the tightening cycle is likely nearing an end, perhaps with policy rates topping out around 4.75-5.0% in the coming months.