A Preview of the Emerging Markets

It is a bitter start of the week for EM. It is difficult to imagine either stabilization or meaningful differentiation in Them until asset prices in major markets find a bottom. Additionally, the second leg down in commodity prices will keep basic pressure elevated for the exporters. Spain, Malaysia, Mexico, South Africa, and Brazil will be the barometers for this. Some possess noted the break over the USD/CNY 6.40 level because meaningful, but we do not study too much into it. The Chinese yuan does what officials said it would do: there is more unpredictability but no large techniques. Markets will probably remain in protective mode for some time. While the price action is starting to look an exaggerated, the risk-reward for wagering on a reversal looks better in the DM space than in EM.

Poland releases its unemployment rate on Tuesday, and it expects in order to tick lower to Ten.1% in July. Recent data has come in on the weaker side, and many are now discussing deflation risks. Last week PPI caught by 1.7% and it has experienced negative territory since late 2012. Retail sales were considerably weaker than expected. Still, the minutes towards the last central bank meeting stated that inflation expects to rise towards the 2.0% focus on gradually. On Friday, Poland also releases its final Q2 GDP print. The original GDP released in the middle of the actual month came in at 3.3% y/y, down from 3.6% in Q1. Overall, rates will probably be on hold for some time, but the risk of cut is growing.

South Africa’s Q2 GDP occurs Tuesday, and expects in order to fall to 2.0% y/y and Zero.8% q/q. If confirmed, it would carry on the gradual – albeit unequal – trend of slowing of the economy. The cycle higher for GDP was in Q4 of 2010, at 3.4%. The largest downside risk for the Southern African economy is the continuing energy crisis with rolling blackouts. Production of electricity, gas, and water expect to carry on declining.

The central bank of Hungary meets on Tuesday and wants to keep rates steady at 1.35%. This will be the first pause after the bank brought prices down from 2.1% within clips of 15 bps. Information out of Hungary has been mixed. Gross domestic product for Q2 fell a lot more than expected to 2.7% y/y, but the latest commercial production and retail sales data have been more upbeat. CPI is running around 0.4% after rising for most of 2015 from the low of -1.4% in The month of january.

Brazil releases current account data on Thursday.  The trade balance has been improving gradually and has flipped back to a surplus in early 2015 and so has the present account, though this is mostly a reflection of lower imports. The current account deficit has shrunk through -$12.6 bln to -$2.5 bln within June. Also of note, FDI has held up relatively well despite all the negative news out of Brazil. FDI for June amounted to $-5.4 bln.

On Wednesday, Singapore releases its July commercial production data. IP wants to contract by -3.7% y/y, under the -4.4% reading for June. Since the sharp drop associated with in 2010-11, industrial production in Singapore never really recovered. Its average since the start of 2011 has been just 2.7%.

Philippines produces its Q2 GDP on Thursday and is expected to rise to 5.7% y/y, from 5.2% in Q1. Development in the Philippines has been relatively steady since the start of 2014, approximately around 6.0%. Data overseas has not been particularly bad. Overseas remittances for June posted a big upside surprise (up Six.1% vs. exp. for 5.4%). In addition, the trade balance for June, released on Tuesday, expects to increase to $858 bln, from $509 mln in May. This is the rate of contraction of imports decelerates as markets expect.

South Africa publishes it’s July PPI figures on Thursday. PPI expects to remain roughly at the same level, around 3.8% y/y. This is substantially higher than the low of 2.6% in February, but well underneath the high of 2014 of 8.8%.

July industry balance for Mexico may report on Thursday. It expects to nearly double to a deficit of -$1.3 bln on the back of both falling imports and exports. The dramatic depreciation from the peso is yet to show any kind of signs of improving Mexico’s external accounts. So far, the focus continues to be squarely on the negative relation to trade shock from the decrease in oil prices.

On Friday, the Czech Republic releases its original Q2 GDP. GDP is unlikely in order to deviate much from the progress reading released earlier within the month, which surprised around the upside at 4.4% y/y. General, data out of the Czech Republic has held up well with the last readings for retail sales and manufacturing PMI surprising around the upside.

Emerging Markets: Week Forward Preview is republished with authorization from Marc to Market