EM Preview for the Week of September 10, 2023

September 10, 2023

EM FX was largely weaker last week as the dollar extended its broad-based rally. COP was the only EM currency to gain against the dollar while CLP, PLN, and MXN were the worst performers. U.S. data this week should support our view that the Fed needs to tighten further, though most likely at the November meeting. Meanwhile, data out of China are likely to underscore the need for more stimulus in EM, including more rates cut like Poland delivered last week. This week, Peru is expected to join the easing club and EM FX is likely to remain under pressure.


Brazil reports August IPCA inflation Tuesday. Headline is expected at 4.66% y/y vs. 3.99% in July. If so, it would be the second straight month of acceleration to the highest since February and approaching the top of the 1.75-4.75% target range. Next COPOM meeting is September 20 and the market is pricing in another 50 bp cut to 12.75%. July retail sales will be reported Friday and are expected at 2.0% y/y vs. 1.3% in June.

Peru central bank meets Thursday and is expected to cut rates 25 bp to 7.5%. If so, it would mark the start of an easing cycle after the tightening cycle ended with the last 25 bp hike back in January. Bloomberg consensus sees another 75 bp of easing in Q4 followed by another 75 bp each in Q1 and Q2, 50 bp in Q3, and 25 bp in Q4 that would see the policy rate end next year at 4.5%. Such an aggressive easing cycle would take a toll on the sol. July GDP proxy will be reported Friday and is expected at -0.1% y/y vs. -0.6% in June.

Colombia reports July IP and retail sales Friday. IP is expected at -1.1% y/y vs. -2.1% in June, while sales are expected at -7.0% y/y vs. -11.9% in June. With the economy facing recession risks, no wonder markets are looking for the start of an easing cycle soon. Next central bank policy meeting is September 29 and a cut then is very possible. The swaps market is pricing in 25 bp of easing over the next three months followed by another 100 bp of easing over the subsequent three months.


Czech Republic reports August CPI Monday. Headline is expected at 8.5% y/y vs. 8.8% in July. If so, it would be the lowest since December 2021 but still well above the 1-3% target range. Next central bank policy meeting is September 27 and after Poland delivered a dovish surprise last week, we believe Czech National Bank may start the easing cycle then. The market is pricing in 75 bp of easing over the next three months followed by another 50 bp over the subsequent three months.

Turkey reports July current account and IP data Monday. The current account is expected at -$4.5 bln vs. $670 mln in June. If so, the 12-month total would rise to -$57.5 bln vs. -$56.5 bln in June. The twin deficits are likely to remain wide in H2 and so interest rates will have to rise further in order to attract investors. The swaps market is pricing in a peak policy rate of 36% over the next three months, followed by the start of an easing cycle over the subsequent three months. We do not think this is enough to push inflation down and stabilize the lira. Retail trade will be reported Tuesday.

Israel reports August trade data Wednesday. Q2 current account data will be reported Thursday. August CPI will be reported Friday, with headline expected at 4.0% y/y vs. 3.3% in July. If so, it would be the first acceleration since January and moves further away from the 1-3% target range. At the last policy meeting September 4, Bank of Israel kept rates steady at 4.75% but warned that it “sees a real possibility of having to raise the interest rate in future decisions, if the inflation environment does not continue to moderate as expected.” Next meeting is October 23 and no change is expected. The swaps market is pricing in steady rates over the next six months, followed by the start of a modest easing cycle over the subsequent six months.

Hungary central bank minutes will be released Wednesday. At the August 29 meeting, the bank cut its 1-day repo rate 100 bp to 14.0% and is expected to do the same at the next meeting September 26 and will then equal the base rate. After that, both rates will likely be cut in unison, with the swaps market pricing in a rate of 11.5% in three months and 9.75% in six months. However, Deputy Governor Virag warned recently that the central bank would no longer be on “autopilot” after this month’s meeting and that further monetary easing would be “data-driven” and “cautious and gradual.”


China reports August money and loan data sometime this week. New loans are expected at CNY1.275 trln vs. CNY346 bln in July, while aggregate financing is expected at CNY2.73 trln vs. CNY528 bln in July. PBOC sets its key 1-year MLF rate Friday and is expected to remain steady at 2.5%. China also reports August IP, retail sales, fixed asset investment, and property investment Friday. IP is expected at 3.9% y/y vs. 3.7% in July, while sales are expected at 3.0% y/y vs. 2.5% in July. FAI is expected at 3.3% YTD vs. 3.4% in July, while property investment is expected at -9.0% YTD vs. -8.5% in July. With stimulus very limited, we expect the economy to continue slowing.

India reports August CPI and July IP Tuesday. Headline inflation is expected at 7.10% y/y vs. 7.44% in July, while IP is expected at 5.3% y/y vs. 3.7% in June. If so, inflation would decelerate for the first time since May but would still be above the 2-6% target range. At the last policy meeting August 10, the Reserve Bank of India kept rates steady at 6.5% and kept its bias towards “removal of accommodation” by a 5-1 vote. Governor Das stressed that ““The MPC is prepared to act if the situation so warrants. Bringing headline inflation within the tolerance band is not enough. We need to remain firmly focused on bringing inflation within the 4% target.” Next meeting is October 6 and no change is expected then. WPI will be reported Thursday and is expected at -0.62% y/y vs. -1.36% in July.  

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2023. All rights reserved..

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction