Emerging Markets Preview: The Week Ahead

(from my colleagues Dr. Win Thin and Ilan Solot)

This should not be a very eventful week for emerging markets. Market focus will remain split between the big events in the US (FOMC and payrolls data) as well as on the myriad of geopolitical risks. Still, it is worth highlighting that the stabilization of the Chinese economy is now being reflected in sentiment towards Chinese equity markets, with H-shares up 20% since their low, thus entering in a proverbial bull market.

Israel central bank announces its decision shortly and is expected to keep rates steady at 0.75%. With inflation easing to 0.5% y/y in June from 1.0% in May, there is little need to tighten policy. Inflation expectations also eased to 1.3% from 1.4% in May, so the central bank is likely to remain on hold for the time being.

Korea reports June current account data Tuesday. It then reports June IP Wednesday, expected to rise 0.5% y/y vs. -2.1% in May. July CPI and trade data will be reported Friday. Inflation is seen easing to 1.6% y/y from 1.7% in June. Exports are seen rising 4% y/y vs. 2.5% in June, while imports are seen rising 2% y/y vs. 4.1% in June. Overall, the picture is one of slowing growth and low price pressures. While some are looking for a BOK rate cut, we see steady rates for now.

South Africa reports money and credit data Tuesday, as well as Q2 unemployment. On Thursday, it reports June trade. Overall, the fundamental picture remains weak and the economy will face more headwinds if SARB tightening continues.

Brazil reports July IGP-M wholesale inflation Wednesday. It then reports June budget data on Thursday, followed by June IP and July trade on Friday. COPOM minutes suggest steady rates for the time being, and we think risk of near-term easing is very low.

Chile reports June manufacturing output and retail sales Wednesday. On Thursday, the central bank releases minutes from its last meeting, when it cut 25 bp. Further easing is likely, as the economic outlook remains weak. 

Taiwan reports Q2 GDP Thursday, expected to rise 3.02% y/y vs. 3.14% in Q1. The economy is slowing, but not by enough to get a policy response from the central bank. We see steady rates for the time being.

Philippines central bank meets Thursday and is expected to hike rates 25 bp to 3.75%. This would be the first move in the overnight rate since a 25 bp cut back in October 2012. However, the market is split. Of the 11 analysts surveyed by Bloomberg, 6 see the 25 bp hike and 5 see no change. Still, tightening appears likely in H2 as the central bank has already taken some back-door tightening moves.

Czech central bank meets Thursday and is expected to keep policy steady. Forward guidance suggests no change in rates or the koruna cap until well into 2015.

Colombia central bank meets Thursday and is expected to hike rates 25 bp to 4.25%. The economy remains strong, and so we see a couple more rate hikes ahead in H2.

China official manufacturing PMI for July will be reported Friday, expected at 51.4 vs. 51.0 in June. After the HSBC flash PMI reading came in at 52.0 vs. 50.7 in June, there is upside risks to the official reading. Overall, recent data point to a stabilizing or even improving economic outlook.

Thailand reports July CPI Friday. Price pressures have been creeping higher, but the weak economic outlook suggests that the next BOT will be a cut, not a hike.