(from my colleague Dr. Win Thin)
EM assets are starting off the week on a softer footing. The China situation remains unsettled, with stocks on Monday posting their biggest one-day loss in eight years. More support measures seem likely if the rout continues.The calm in China equity markets from last week has been shattered, and is having reverberations across EM as MSCI EM breaks down to multi-year lows. Indeed, the June 2013 low is approaching, and a break below would target the 2011 low.
Lower commodity prices are adding to the EM gloom, with oil and copper making new lows for this current move. We expect negative EM sentiment to continue building. Many EM currencies are trading at multi-year or all-time lows, and we think more will join this growing group in the coming days and weeks.
Thailand reports June manufacturing production Tuesday, expected at -5.0% y/y vs. -7.6% in May. On Friday, it reports June trade and current account data. The economy remains soft, but the external accounts continue to improve from plunging imports. As deflationary conditions continue, the BOT seems likely to cut rates again in H2.
South Africa reports June M3 and private sector credit on Wednesday, expected to rise 8.55% and 9.27%, respectively. Later that day, it reports Q2 unemployment, expected at 26.5% vs. 26.4% in Q1. High unemployment will feed into social tensions, even as the labor unions negotiate for higher wages. June trade will be reported on Friday, expected at ZAR4.4 bln vs. ZAR5.0 bln in May. The resumption of the tightening cycle will weigh on the already weak growth outlook. Furthermore, the rate hike did nothing to help the rand, which ended last week at multi-year lows.
Brazil central bank meets Wednesday and is expected to hike rates 50 bp to 14.25%. Earlier that day, Brazil reports June PPI. On Thursday, it reports July IGP-M wholesale inflation, expected to rise 7.0% y/y vs. 5.6% in June. Price pressures continue to build, and will keep pressure on the central bank to continue hiking rates. Central government budget data for June will also come out Thursday, followed by consolidated budget data on Friday. Recent adjustment to the primary surplus target could be the trigger for a Brazil rating downgrade.
