EM ended last week on a soft note, due in large part to the attempted coup in Turkey. Weakness in the lira spilled over into wider EM weakness in thin Friday afternoon market conditions. The situation in Turkey has calmed, and so EM may gain some limited traction this week. However, that calm will likely be very fragile and so we retain a defensive posture with regards to EM.
Central Bank of Turkey meets Tuesday and is expected to keep the benchmark rate steady at 7.5%. However, it is expected to deliver another 50 bp cut to the overnight lending rate from 9% currently. Inflation moved back above the 3-7% target range in June, and so the bank will have to play it cautiously, especially in light of the current political uncertainty.
Poland reports June industrial and construction output, retail sales, and PPI Tuesday. Central bankers appear mixed on the policy outlook right now. If the economy continues to soften, we expect the MPC to tilt more dovish in H2. Next policy meeting is September 7, and the decision will depend on how the economy looks over the next couple of months.
Malaysia reports June CPI Wednesday, which is expected to rise 1.8% y/y vs. 2.0% in May. After last week’s surprise 25 bp cut, this data point doesn’t have much relevance. However, if the inflation trajectory remains benign, further rate cuts are likely in H2. The next policy meeting is September 7, and another cut then is possible.
Taiwan reports June export orders Wednesday, which are expected at -5.0% y/y vs. -5.8% in May. It then reports June IP Friday, which is expected to rise 0.5% y/y vs. 1.9% in May. Recent export orders data suggest little relief ahead for exports and IP. The central bank is likely to continue easing in H2 as a result.
South Africa reports June CPI Wednesday, which is expected to rise 6.3% y/y vs. 6.1% in May. The South African Reserve Bank then meets Thursday and is expected to keep rates steady at 7.0%. With the rand firming, price pressures may ease near-term and should allow SARB to keep rates steady for now.
Brazil’s central bank meets Wednesday and is expected to keep rates steady at 14.25%. Brazil then reports mid-July IPCA inflation Thursday, which is expected to rise 8.84% y/y vs. 8.98% in mid-June. Inflation measures are mixed, with consumer prices easing and wholesale/producer prices accelerating. This meeting seems too soon to cut, but the August 31 meeting seems more likely.