EM Preview for the Week of June 16, 2024

June 16, 2024

EM FX was soft across the board last week despite a mixed dollar performance against the majors. ZAR was the only EM currency to gain after the ANC and DA agreed on a coalition, while COP, HUF, and PLN were the worst EM performers last week. The dollar smile remains in play and so EM FX is likely to remain under pressure from a hawkish Fed and ongoing political uncertainty in the eurozone.

AMERICAS

Chile central bank meets Tuesday and is expected to cut rates 25 bp to 5.75%. However, the market is split. Of the 12 analysts polled by Bloomberg, 1 sees steady rates, 7 see a 25 bp cut, and 4 see a larger 50 bp cut. At the last meeting May 23, the bank cut rates 50 bp to 6.0% by a unanimous vote and said that the policy rate would continue to fall. Inflation in Chile has been sticky around 4% since April, while the peso has weakened nearly 6% since that last decision. This argues for caution by the central bank. The market is pricing in 125 bp of total easing over the 12 months that would see the policy rate bottom at 4.75%.

Brazil COPOM meets Wednesday and is expected to keep rates steady at 10.5%. At the last meeting May 8, the bank cut rates 25 bp but gave no forward guidance as it had done at previous meetings. Since then, inflation has accelerated, the fiscal outlook has deteriorated, and the real has weakened nearly 7%. Of note, the swaps market is pricing in 100-125 bp of tightening over the next 12 months on Brazil’s worsening fiscal outlook. President Lula indicated last week he is not considering spending cuts to address growing fiscal concerns.

EUROPE/MIDDLE EAST/AFRICA

National Bank of Hungary meets Tuesday and is expected to cut rates 25 bp to 7.0%. However, nearly a quarter of the analysts polled by Bloomberg look for a larger 50 bp cut. At the last meeting May 21, the bank cut rates 50 bp and Deputy Governor Virag noted that the base rate will be between a 6.75-7.00% by end-June, adding that room for rate cuts in the second half of this year is “very, very limited.” The swaps market sees the policy rate at 7.00% over the next three months, falling to 6.75% over the next 12 months.

South Africa reports May CPI and April retail sales Wednesday. Headline is expected to remain steady at 5.2% y/y, while core is expected to fall a tick to 4.5% y/y. At the last meeting May 30, SARB left rates unchanged at 8.25% but forecast inflation to hit the 4.5% target in Q2 2025 vs. end-2025 seen in March. The market is pricing in 25 bp of easing over the next three months. Elsewhere, sales are expected at 1.5% y/y vs. 2.3% in March. The political outlook has improved as President Ramaphosa will remain in his post after the ANC/DA coalition deal and so the rand should recover further.

ASIA

PBOC is expected to keep its 1-year MLF rate unchanged at 2.5% Monday. China reports May new and used home prices, residential property sales, IP, retail sales, FAI, and property investment Monday. IP is expected at 6.2% y/y vs. 6.7% in April, sales are expected at 3.0% y/y vs. 2.3% in April, FAI is expected to remain unchanged at 4.2% YTD, and property investment is expected at -10.0% YTD vs. -9.8% YTD in April. China commercial banks are expected to keep their key Loan Prime Rates unchanged Thursday. Some further easing is likely in H2 but until tough structural reforms are enacted, the economy is likely to remain sluggish.

Bank Indonesia meets Thursday and is expected to keep rates steady at 6.25%. A handful of analysts polled by Bloomberg look for a 25 bp hike to 6.50%. We see risks of a hawkish surprise in order to stem the decline in the rupiah and help prevent any imported inflation. BI noted recently that it expects USD/IDR to remain manageable below 16,300 but USD/IDR is currently higher at 16,400. It last hiked rates 25 bp at the April 24 meeting to help support the rupiah but it has weakened 2% since then.  

More from Mind on the Markets

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