EM Preview for the Week Ahead

EM is likely to remain under pressure as US -China relations remain strained.  Despite his claims that things are going “very well”, President Trump admitted that the September talks might be cancelled.  This is very negative for EM, which saw some stability towards the end of last week.

China reports July new loan and money supply data this week, but no date has been set.  July IP and retail sales will be reported Wednesday and are expected to rise 6.0% and 8.6% y/y, respectively.  While we expect further stimulus measures, we think a PBOC rate cut is unlikely at this juncture.  Such a move would likely add to yuan weakness and we do not think policymakers want to put more pressure on the currency.

Czech Republic reports July CPI Monday, which is expected to remain steady at 2.7% y/y.  If so, inflation would remain within the 1-3% target range.  Q2 GDP will be reported Wednesday and is expected to grow 2.6% y/y vs. 2.8% in Q1.  Recent data suggest the slowdown is intensifying, and so we see downside risks to Q2 growth.

Russia reports Q2 GDP Monday, which is expected to grow 0.8% y/y vs. 0.5% in Q1.  Weak commodity prices from the trade war has really taken a bite out of Russian exports and growth.  Central bank is likely to continue cutting rates as a result, but higher energy prices are key for Russia’s outlook.  Next policy meeting is September 6, and a 25 bp cut to 7.0% is expected.

Brazil reports June monthly GDP Monday, which is expected at -2.3% y/y vs. +4.4% in May.  If so, Q2 growth would likely remain steady at 0.5% y/y.  IPCA inflation rose only % y/y in July, which should allow COPOM to cut rates 50 bp again at the next policy meeting September 18.

Poland reports June trade and current account data Tuesday.  Q2 GDP will be reported Wednesday and is expected to grow 4.5% y/y vs. 4.7% in Q1.  Central bank Governor Glapinski said he won’t hesitate to cut rates if the economy slows sharply.  Next policy meeting is September 11, no change is expected.

India reports July CPI Tuesday, which is expected to rise 3.12% y/y vs. 3.18% in June.  If so, inflation would remain in the bottom half of the 2-6% target range.  WPI will be reported Wednesday, which is expected to rise 1.87% y/y vs. 2.02% in June.  RBI just delivered a dovish surprise last week and we expect further easing at the next policy meeting October 4.

Hungary reports Q2 GDP Wednesday, which is expected to grow 4.6% y/y vs. 5.3% in Q1.  Like the rest of CEE, Hungary is feeling the chill from the slowdown in Western Europe.  The central bank has taken some modest tightening measures this year, but the slowing economy is likely to keep it cautious in H2.  Next policy meeting is August 27, no change is expected then.

South Africa reports June retail sales Wednesday, which are expected to rise 2.0% y/y vs. 2.2% in May.  The economy remains sluggish.  While the SARB should continue to cut rates, the weak rand is problematic.  Next policy meeting is September 19, and what happens then will hinge in large part on the rand and the external backdrop.

Colombia reports June manufacturing production and retail sales Wednesday.  They are expected to rise 2.5% and 5.5% y/y, respectively.  Q2 GDP will be reported Thursday and is expected to grow 2.9% y/y vs. 2.8% in Q1.  The economy remains sluggish, and lower oil prices will take a toll on Q3 growth.  After Peru cut rates, Colombia is now the only major Latin American economy not to ease yet.  Next policy meeting is September 27, and odds of a rate cut then have risen.

Banco de Mexico meets Thursday and is expected to keep rates steady at 8.25%.  However, the market is split.  Of the 20 analysts polled by Bloomberg, 8 see a 25 bp cut, 11 see no cut, and 1 sees a 50 bp cut.  The economy remains weak while inflation is back within the 2-4% target range.  The peso may be the deciding factor, with excessive weakness likely to delay a cut until the next meeting September 26.

Argentina reports July CPI Thursday and is expected to rise 2.4% m/m vs. 2.7% in June.  If so, the y/y rate would ease slightly to 54.2% from 54.8% in June.  Exit polls from this weekend’s primary vote have come in and they are not good.  Opposition leader Fernandez appears to be leading Macri in terms of total votes.

Singapore reports July trade data Friday.  NODX are expected to contract -14.8% y/y vs. -17.3% in June.  The regional exporters continue to suffer from the US-China trade war.  Until that has been resolved and tariffs cut, regional trade and growth are likely to remain weak.  MAS next meets in October and odds of easing then have risen.

Malaysia reports July CPI and Q2 GDP Friday.  Inflation is expected to remain steady at 1.5% y/y, while growth is expected at 4.6% y/y vs. 4.5% in Q1.  While the central bank does not have an explicit inflation target, low price pressures should allow it to cut rates again in H2 as a follow-up to its May cut.  Next policy meeting is September 12, no change is expected then.

Turkey reports June IP Friday, which is expected to contract -0.3% y/y vs. -1.3% in May.  With the economy remaining week, Erdogan will keep downward pressure on interest rates.  Next central bank policy meeting is September 12 and another large cut is expected then.