EM Preview for the Week of July 16, 2023

July 16, 2023

EM FX was mostly firmer last week as the dollar remained under broad-based pressure. HUF, ZAR, and MYR outperformed while ARS, CLP, and TRY underperformed. Risk on sentiment is pervasive as markets believe the end of the Fed tightening cycle is near. We believe this is premature but for now, we cannot stand in the way of this narrative and so further near-term dollar weakness seems likely. Eventually, deteriorating macro conditions in the rest of the world should boost the greenback’s attractiveness but we are not there yet.

AMERICAS

Brazil reports May GDP proxy Monday. Growth is expected at 4.00% y/y vs. 3.31% in April. With growth slowing, expectations for an easing cycle have solidified and the market is pricing in a 25 bp cut at the next COPOM meeting August 2. Looking ahead, the market is pricing in 75 bp of easing over the next three months followed by another 125 bp over the subsequent three months.

Colombia reports May GDP proxy Tuesday. Growth is expected at 0.6% y/y vs. -0.8% in April. With growth slowing, expectations for an easing cycle have been moved forward. The market is pricing in 25 bp of easing over the next three months followed by another 100 bp over the subsequent three months.

EUROPE/MIDDLE EAST/AFRICA

Poland reports June core CPI Monday. Core inflation is expected at 11.1% y/y vs. 11.5% in May. Industrial and construction output and PPI will be reported Thursday. IP is expected at -1.6% y/y vs. -3.2% in May, construction is expected at 1.0% y/y vs. -0.7% in May, and PPI is expected at 1.0% y/y vs. 3.1% in May. Real retail sales will be reported Friday and are expected at -5.0% y/y vs. -6.8% in May. The economy is slowing and so the market is pricing in the start of an easing cycle soon despite still-high inflation. The market is pricing in 25 bp of easing over the next three months followed by another 75 bp over the subsequent three months.

Turkey reports central government budget balance Monday. The central bank meets Thursday and is expected to hike rates 325 bp to 18.25%. However, market expectations are all over the place. Of the 16 analysts polled by Bloomberg, 1 sees 200 bp, 3 see 250 bp, 4 see 300 bp, 1 sees 350 bp, 4 see 400 bp, and 3 see 500 bp. At the last meeting June 22, the bank delivered a dovish surprise and hiked rates 650 bp to 15.0% vs. 1150 bp expected. Since then, the lira has weakened another 10% before stabilizing from likely covert official support. The market is pricing in 1100 bp of tightening over the next three months followed by another 250 bp over the subsequent three months that would see the policy rate peak near 28.50%. With inflation running near 40%, this would not be enough to stabilize the lira.

South Africa reports June CPI and May retail sales Wednesday. Headline inflation is expected at 5.5% y/y vs. 6.3% in May, while core is expected at 5.1% y/y vs. 5.2% in May. If so, headline would be the lowest since November 2021 and back within the 3-6% target range for the first time since April 2022. Elsewhere, sales are expected at -1.1% y/y vs. -1.6% in April. The South African Reserve Bank meets Thursday and is expected to hike rates 25 bp to 8.5%. A few of the analysts polled by Bloomberg see steady rates. At the last meeting May 25, the bank hiked 50 bp to 8.25% and raised its inflation forecasts whilst warning of further rand weakness ahead. Looking ahead, the market is pricing in steady rates over the next 12 months followed by the start of an easing cycle over the subsequent 12 months.

ASIA

People’s Bank of China is expected to keep its key 1-year MLF rate steady at 2.65% Monday. China also reports Q2 GDP as well as June IP and retail sales Monday. GDP is expected at 0.8% q/q vs. 2.2% in Q1, while the y/y rate is expected at 7.1% vs. 4.5% in Q1. IP is expected at 2.5% y/y vs. 3.5% in May while sales are expected at 3.3% y/y vs. 12.7% in May. The economy is clearly slowing and so there will be pressure on policymakers to add more stimulus. China’s commercial banks set their key 1- and 5-year Loan Prime Rates Thursday and are expected to be kept steady at 3.55% and 4.20%, respectively.

Taiwan reports June export orders Thursday. Orders are expected at -19.5% y/y vs. -17.6% in May. If so, it would be the eighth straight month of double digit contraction and tenth straight of overall contraction. Elsewhere, Korea reports trade data for the first twenty days of July Friday. Export growth improved in June but this will be difficult to sustain given sluggish regional growth and activity.

More from Mind on the Markets

  • ""

    Dollar Firm Ahead of CPI

    Read More
  • U.S. Dollars and hourglass

    Ready, Set, Inflate

    6 min read
    Read More
  • ""

    Dollar Gains on Strong U.S. Backdrop

    Read More
SHOW ALL

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

1 of 2

2 of 2