What has changed in EM - BBH

Marc Chandler, Global Head of Currency Strategy at Brown Brothers, shares his views on the emerging markets:

Key quotes:

"Chinese President Xi visited Hong Kong for the first time.  The visit commemorates the 20th anniversary of the Hong Kong handover. Xi stressed that the “one country, two systems” framework remains successful.  USD/HKD traded at its highest level since January 2016."

"The US has proposed $1.3 bln of arms sales to Taiwan.  The package would reportedly contain early warning radar, anti-radar missiles, and naval torpedoes.  It was approved by the Defense Department and will move forward unless Congress blocks it within 30 days.  Of course, Chinese officials objected."

"The Egyptian government raised fuel and cooking gas prices significantly as part of the IMF program.  Prime Minister Ismail said inflation (29.7% y/y in May) was likely to accelerate 4-5 percentage points as a result of the price hikes.  After a 300 bp hike in conjunction with the EGP float, the central bank remained on hold until it hiked 200 bp more to 16.75% in May."  

"South Africa’s parliament has scheduled the no confidence vote on President Zuma.  After several delays, the vote will be held on August 3.  Parliament added that it has not yet decided on whether the vote will be done via secret ballot."

"Brazil’s central bank lowered its inflation target.  The central bank will now target inflation at 4.25% in 2019 and 4.0% percent in 2020, down from the 4.5% target that has been in place since 2005.  The tolerance band was kept at +/- 1.5 percentage points, which came into effect this year."    

"Politics is taking center stage again in Brazil after President Temer was charged with corruption.  This is connected to the recent secret recordings of an alleged conversation between Temer and Joesley Batista.  The charges now need to be approved by two thirds of the lower house in order to proceed.  Even if he survives the vote, the reform agenda will be delayed, if not derailed."