The iShares MSCI Emerging Market ETF (
EEM
,
quote
) finished flat as an almost 2.0% loss on Friday wiped out gains
made earlier in the week.
A weaker than expected payroll report in the United States put
its economic recovery in question and the European Central Bank
failed to deliver on expectations at its meeting Thursday. The
ECB did lower the benchmark interest rate to a record 0.75% and
reduced the rate on overnight deposits to zero.
In a surprise emerging market announcement Thursday, the
People's Bank of China cut interest rates for the second time in
a month. While the Bank of England did not lower rates, the
target on its asset purchase stimulus program was raised by $77
billion to $577 billion.
European financial leaders meet today to work out the details
of programs discussed during the recent leaders' summit, though
little is expected in the way of actual policy announcements. The
U.S. Federal Reserve will release the minutes of its last
meeting this Wednesday. Investors will be looking for any clues
as to how close the FOMC was to enacting more stimulus in
June.
Though emerging markets will remain highly correlated to any
headline risk out of Europe, China will take the spotlight this
week with important economic reports nearly every day this week.
The surprise cut in rates by the PBOC led many to believe that
economic data may come in weaker than expected.
Monday, July 9
The emerging market of China starts the week with its consumer
and producer prices reports. Expectations are for consumer price
inflation to increase just 2.3% on an annualized basis versus
3.0% reported last month. Producer price pressures may show
greater deflation to -2.0% against last month's -1.4%
annualized.
Tuesday, July 10
China's Vice Premier Wang Qishan recently admitted that it
will be
difficult to hit the country's target
of 10% for trade growth this year. Weakness in key markets, most
notably Europe, has caused exports to come under pressure for the
world's second largest economy. The emerging market will report
its trade balance on Tuesday with expectations for exports to
post a 9.9% gain and imports to increase by 12.7% over the last
year. The overall trade balance is expected to increase to $24
billion from $18.7 billion last month. Exports rebounded last
month with a gain of 15.3% after surprising to the downside in
April.
The Purchasing Managers' Index reported by HSBC for last month
showed the weakest level of factory activity in seven months. The
official PMI manufacturing index, reported by the government, was
able to remain in expansionary territory but has weakened in the
past several reports.
Wednesday, July 11
On Wednesday, investors will see if rate cuts by the PBOC have
further increased new yuan loans in China. Expectations have been
pared lately as
China Daily
reports anonymous sources saying the country's
four largest banks loaned about 28% less
than had been expected. Original expectations were for an
increase to ¥950 billion ($149 billion) have been cut to just
¥880 billion ($138 billion), still almost 11% above last months
¥793.2 billion ($125 billion) in lending.
Brazil will release retail sales data for last month and the
central bank is widely expected to cut the benchmark SELIC rate
to 8.0% on Wednesday. Retail sales are expected to rebound to
10.5% from last month's annualized rate of 6.0% as consumers take
advantage of lower interest rates. The emerging market faces some
tough challenges as the economy has yet to respond to stimulus
and
default rates
reach record highs.
Thursday, July 12
Monetary authorities in the emerging market nations of Korea,
Chile, Indonesia and Peru meet on Thursday to decide policy.
While none are expected to reduce rates, the struggling global
environment and weak commodity prices put the risk firmly to a
surprise decrease in rates. Korea recently lowered its target for
economic growth to 3.3% and reduced inflation estimates to 2.8%,
well within the bank's target range of 2% to 4%.
Chile also cut its estimate for inflation to 2.7% while
maintaining GDP estimates for 4% to 5%. The central bank kept the
door open for rate cuts in its last meeting and admitted that
external financing conditions have gotten restrictive.
Peru's central bank has held rates at 4.25% for 13 consecutive
months even as the emerging market grew only 4.37% over the last
twelve months to April, its slowest rate in two years. Inflation,
currently at 4.14% but estimated to fall to 3% this year, is at
the top end of the bank's range. Growth is expected at 5.8% this
year as the eurozone, accounting for 18% of exports, continues to
struggle.
Friday, July 13
China will wrap up the week with its GDP report along with
data on industrial production, retail sales and fixed asset
investment. GDP in the first quarter disappointed the markets
with an increase of just 8.1%. Second quarter growth will most
likely show the worst performance in three years at just 7.9%
even as many are positioning for a lower number based on the
surprise cut in rates last week. Retail sales should remain
strong, falling to around 13.5% from the 13.8% annualized growth
reported last month and industrial production is seen gaining
9.8%.
The emerging market of India reports inflationary pressures
with its WPI report on Friday. Expectations are for inflation to
remain elevated but similar to last month's 7.55% gain from a
year ago.
The central bank of Russia will probably keep rates at 8.0%
after lowering them in December. Consumer prices increased 1.5%
last month and brought the annual pace for the emerging market to
5.9%, mostly on an increase in food costs.
