(Bloomberg) -- If emerging markets have been caught between the prospect of easier monetary policy and the deepening trade war lately, then the next few days may merely underscore that conundrum.
Policy makers in Indonesia to Brazil will probably shift to a more dovish stance at meetings this week, and the Philippine central bank may cut its key rate again after easing in May. Much of the rationale for the softer turn is the Federal Reserve’s own dovish tilt. The U.S. central bank meets June 18-19, with strategists divided on the prospect of lower rates as trade tensions cloud the global growth outlook.
“We see assets as having to price in a bit more risk for global growth and trade policy,” said Patrick Wacker, a fund manager at UOB Asset Management, whose emerging-market debt fund has outperformed the market this year with a gain of 8.7%. “With near-term risks to the downside, we do not believe right now is the best time” to add assets that are sensitive to market swings, he said.
China’s industrial output growth in May slowed to the weakest pace since 2002, highlighting the headwinds the Asian nation is facing. Rising tensions in the Persian Gulf may also weigh on emerging markets should it lead to a surge in oil prices, according to Singapore-based UOB Asset Management Ltd.
Will Doves Cry?
- Governor Benjamin Diokno said the central bank in the Philippines, which cut rates last month, is bound to ease policy further. The peso is the best performing Asian currency this year after the Thai baht
- Indonesia is expected to hold its main interest rate, but the decision is still worth keeping an eye on. Governor Perry Warjiyo said the central bank will calibrate its policy to support financial stability and boost economic growth. And the country’s finance minister said the nation will likely join other central banks in easing monetary policy to counter a global slowdown
- Policy makers have been reluctant to ease too quickly to avoid destabilizing the currency, the worst performer in the region this month
- While Brazil’s central bank will probably hold its key rate Wednesday, investors will still be on watch for whether post-meeting statement reflects anxiety over disappointing growth
- The real led emerging-market declines on Friday after Brazil’s Economy Minister Paulo Guedes chided lawmakers on changes to his pension overhaul proposal, fueling tension in Congress just as the government seeks support to approve the controversial bill
- Colombia’s central bank will probably maintain its key rate Friday as policymakers remain confident of a recovery throughout 2019, which may be supported by April’s economic activity index released the same day
- Taiwan, which last moved its key rate in 2016 with a cut, will likely remain on hold
- Uganda and Mozambique will also decide on rates this week
Argentina and Turkey
- Argentina will report first-quarter GDP data Wednesday that is expected to show a fifth quarter of contraction. The peso outperformed its most emerging-market peers last week and bonds rallied after President Mauricio Macri named opposition leader Miguel Pichetto as his running mate in October’s election
- A huge power failure cut off electricity in Argentina and Uruguay on Sunday morning, according to media reports and a regional utility
- Turkish budget data on Monday will show how much the government spent ahead of the June 23 repeat election in Istanbul, while a decline in industrial production on Tuesday could be the first sign of an anticipated economic contraction in the second quarter
- Moody’s decision to downgrade Turkey’s credit rating is incompatible with fundamental indicators, Turkey’s Treasury and Finance Ministry said, adding that the country will never abandon free-market principles
- President Donald Trump said “it doesn’t matter” if Chinese President Xi Jinping agrees to meet with him later this month to restart negotiations over trade because the U.S. is collecting billions of dollars in tariffs on goods from the country
- Trump has repeatedly threatened to raise tariffs if Xi doesn’t meet with him at the G-20 leaders’ meeting in Osaka, Japan later this month
- India imposed higher customs duties on a raft of U.S. goods effective June 16 in response to similar measures taken by Washington, according to a government notice
--With assistance from Alec D.B. McCabe, Philip Sanders and Tomoko Yamazaki.
To contact the reporters on this story: Netty Ismail in Dubai at email@example.com;Karl Lester M. Yap in Manila at firstname.lastname@example.org;Sydney Maki in New York at email@example.com
To contact the editors responsible for this story: Dana El Baltaji at firstname.lastname@example.org, Shaji Mathew
©2019 Bloomberg L.P.