Speaking in general terms, most emerging markets wound up the last week in relatively soft positions. This was overwhelmingly due to fluctuations caused by Turkey’s unsuccessful coup attempt. This had a significant destabilizing effect on the Turkish Lira which spread out into other EM currencies during thin trading on Friday afternoon. Now matters in Turkey have started to calm down, which should hopefully give EM a little additional traction in the coming week. Even under the best possible circumstances, EM will likely be extremely fragile, so we’re recommending a defensive posture.
On Tuesday, Turkey’s Central Bank will be meeting to discuss the financial situation and make adjustments. Although the benchmark rate should be held where it is right now – 7.5 percent – the current lending rate of 9 percent will likely be cut by 50 bp. Last month’s rate of inflation wound up higher than projected (three to seven percent), so the bank will be strongly encouraged to be cautious by financial circumstances as well as political ones.
Tuesday will also see Poland’s June figures published for retail sales, PPI, and industrial and construction output. For the time being, outlooks on policy are highly mixed. Continued economic weakness could lead towards dovish MPC behavior in H2. Policies will be reevaluated on September 7 based on Poland’s economic performance in the intervening months.
On Wednesday, Malaysia will be reporting its CPI for June. A rise of 1.8 percent is expected, contrasted to its 2 percent performance in May. This difference is really too small to matter in the face of the surprising cut of 25 bp made last week. As long as Malaysia’s inflation outlook stays rosy, the odds of seeing another rate cut in H2 are very good. Further cuts may be announced at the next policy meeting on September 7.
In Taiwan, export orders for June will be released on Wednesday. May’s figure was – 5.8 percent y/y, and June’s number is expected to be around – 5 percent. Friday will see the release of June IP, with expectations being roughly 0.5 percent compared with 1.9 percent from May. There currently aren’t any signs of relief to be found in the latest export data, so continued easing steps from the central bank over H2 seem likely.
South Africa’s June CPI report comes out Wednesday. Expectations predict a 6.3 percent y/y rise after May’s 6.1 percent gain. The reserve bank will be meeting on Thursday, and rates are likely to stay at 7 percent.
The central bank of Brazil is meeting Wednesday. No change to the current rate of 14.25 percent is expected. IPCA inflation through mid-July will be reported Thursday, with expectations close to the same 8.98 percent rise seen in June. Wholesale pricing is speeding up while consumer prices ease, leading to a mixed inflation outlook. A cut this week seems unlikely, but the next meeting on August 31 may be a different story.