Emerging markets were set for losses of up to 3.0% last Thursday
until Federal Reserve Chairman Ben Bernanke saved markets with
his comments at Jackson Hole, Wyoming on Friday.
[caption id="attachment_72387" align="alignright" width="300"
caption="Cemex cement factory, Monterrey, Mexico"]
The iShares MSCI Emerging Markets ETF (
) finished the week down 1.4%, underperforming a quarter percent
loss in the S&P 500.
Markets in the United States are closed for the Labor Day
holiday today, though emerging markets will present important
manufacturing reports and the central bank of Russia will decide
its refinance rate. The rest of the week will bring a few data
points, more important for individual emerging markets than for the
emerging markets space as a whole.
The European Central Bank meets on Thursday in what will
arguably be the most widely anticipated news of the week. ECB
President Mario Draghi will most likely defer any grand decisions
German constitutional court decides on the ESM
September 12, but markets are still hoping for a more detailed
outline of the bank's next move.
Monday, September 3
The emerging markets subcontinent of India is expected to show
further weakness in manufacturing with the consensus for a decline
in the PMI report to 52.0 from 52.9 last month.
Russia may continue gains in its manufacturing sector after
July's PMI showed an increase to 52.0 from 51.0 in the previous
month. Emerging markets investors are optimistic for the August PMI
report due to the strong increase in new orders for July coming in
at 53.6, well above the 50.0 mark that separates growth and
Turkey's manufacturing sector contracted in July, the
first time in four months. The PMI manufacturing index may fall
further from 49.4 reported last month as new orders have been weak
and producers have lowered prices to maintain sales.
Brazil is expected to report an increase in manufacturing PMI
from 48.7 reported last month, though the sector will still show
contraction. July's service sector report showed it slowing at the
fastest pace in three years with a drop to 48.9 from 53.0 in the
prior month. Contraction in the two PMI reports is a stark contrast
to growth in economic activity reported last week.
The Russian central bank is not expected to change its refinance
rate from 8.0% Monday. Sector reports for manufacturing and
services show economic activity still has reasonable momentum
despite slower export growth and global economic uncertainty. The
Market Vectors Russia ETF (
) has rebounded strongly on higher crude prices, but still trades
relatively cheaply at around six times trailing earnings.
Tuesday, September 4
Industrial production in the emerging markets nation of Brazil
disappointed the market with a year-over-year decline of 5.5%, but
is expected to have picked up slightly in August as government
stimulus and historically low rates spur growth. Weak export demand
caused the industrial sector, about 30% of the economy, to contract
in the first half of the year. The country reported last week that
GDP growth increased by 0.5% in the second quarter on a
year-over-year basis. GDP growth has slowed considerably from 7.5%
in 2010 to 2.7% last year and may not meet expectations for 2%
growth this year.
Wednesday, September 5
The service sector in Russia grew at its slowest pace in 22
months in July with the PMI services index falling to 52.0 from
53.2 in June. Investors are hoping for a rebound in August's report
but may be disappointed as weak global growth weighs on the sector.
The composite index of both manufacturing and services should show
fairly strong resilience as the manufacturing sector picks up
The National Bank of Poland meets to decide its base rate with
consensus expectations for no change from the 4.75% rate. The bank
raised rates in May this year to combat persistently high
inflation, though some policymakers have recently argued for a cut.
The risk is clearly to a surprise rate cut; inflation has slowed
somewhat to 4.0% and the economy is showing signs of weakness due
to regional problems. The iShares MSCI Poland ETF (
) has outperformed the broader emerging markets index by almost 10%
this year as currency depreciation helps to manage a weak export
Thursday, September 6
The National Bank of Malaysia is not expected to change its
overnight policy rate from 3.0% as growth should meet expectations
of around 5.0% this year and inflation remains subdued at 4.0%. The
economy is relatively insulated, relying more on domestic demand
than export strength.
Brazil and Mexico both report vehicle production and sales on
Thursday. Mexico's government outlined plans to
increase auto production by 38%
over the next three years as automakers look for alternatives to
increasing wages in China. Brazilian auto production may set a
record as government tax breaks incentivizes sales. Strong sales in
the current quarter could mean
weakness in coming quarters as sales are pulled forward
and government stimulus programs came on the stipulation that
layoffs would be avoided.
Friday, September 7
Mexico is expected to show continued upward pressure on prices
after last month's CPI surprised emerging markets observers. An
outbreak of avian flu caused egg prices to shoot up recently and
drove price increases in July to 4.42% on a year-over-year basis.
The Bank of Mexico meets on Friday to set its overnight rate but is
not expected to change the 4.5% policy rate.
Chile should show consumer price increases were fairly benign in
the previous month with expectations for the CPI to increase at a
2.6% yearly rate from 2.5% reported last month. Strong economic
fundamentals in the Andean region have helped the country to
roughly 4.3% growth this year and have put upward pressure on the