Emerging Markets are increasingly affected by the weakening trade momentum and are still not benefitting from better credit conditions. June data showed an aggregate manufacturing PMI below 50 (49.4) for a second month in a row, consistent with a contracting manufacturing output. The weakest indicators came from open economies with a PMI index that went to its lowest level since May 2009 (48.4), in a broad-based evolution in Asia, Eastern Europe and Latin America (Mexico). This shows that the trade dispute between the US and China has had an impact, particularly on key sectors in Asia (technology). It also shows that other aspects are at play, such as sectoral difficulties (automotive industry), that are broadening to cyclical sectors (chemicals). As a consequence, Emerging Markets should now adopt more dovish policies, particularly in Asia, where fiscal surpluses can give a leeway to implement stimulus. Lowering long-term rates around the world did not translate into a more dovish monetary policy in Emerging Markets and all eyes are turning towards the Fed’s July 30-31 meeting.
