Policy and Data: Emerging Markets in the Week Ahead

(from my colleagues Dr. Win Thin and Ilan Solot)

Brazil's August PMI was reported earlier today and it improved to 49.4 from 48.5 in July.  The August trade balance will be reported shortly and  is expected to show that the trade balance swung into surplus, owing to both an increase in exports and a decline in  imports. Brazil central bank releases minutes of the August meeting on Thursday, when it hiked rates 50 bp, followed by August IPCA inflation on Friday. Inflation is expected to slow to 6.1% y/y from 6.3% y/y in July, which would help build the case for an end soon to the tightening cycle. Minutes should provide some clues, but we are expecting another 75 bp of hikes that would take the SELIC rate to 9.75%. For USD/BRL, support seen near 2.30, resistance seen near 2.40 and then 2.45.

China reports non-manufacturing PMI Tuesday, and comes after firmer manufacturing PMIs were reported over the weekend. Firmer PMI data suggest that the economy is stabilizing, but we do not expect a return to robust growth. For now, we see USD/CNY trading sideways in the 6.10-6.15 range.

Turkey reports August CPI Tuesday, and is expected at 8.1% y/y vs. 8.9% y/y in July. However, given the sharply weaker lira and higher oil prices that month, we think the risk is to the upside. Average cost of funds continues to hover around 7%, just below the new ceiling at 7.75%. If selling pressure resumes on EM as we expect, poor fundamentals should continue to keep the lira underperforming. For USD/TRY, support seen near 2.00, while resistance seen near 2.05 and then 2.0730.

Poland central bank meets Wednesday and is expected to keep rates steady at 2.5%. The real sector has been stabilizing, and should keep the bank on hold for now. However, inflation and inflation expectations remain very low, giving the bank cover to cut rates again if the economy takes another leg down. For EUR/PLN, support seen near 4.25 and then 4.20, resistance seen near 4.30 and then 4.35.

Malaysia central bank meets Thursday and is expected to keep rates steady at 3.0%. The economy is slowing, but not by enough to get the central bank to cut just yet. Inflation remains low, at 2.0% y/y in July. This will give the central bank cover to ease in the coming months if the economy slows too much. For USD/MYR, support seen near 3.25 and then 3.20, resistance seen near 3.35.  

Mexico central bank meets Friday and is expected to keep rates steady at 4.0%.  Later today, it o will report August PMI. Manufacturing stood at 48.5 in July, while non-manufacturing stood at 51.1. Real sector data have been coming in much weaker than expected in recent months. While we think the central bank is still on hold for now, we can no longer rule out an eventual rate cut if the data continue to weaken. For USD/MXN, support is seen near 13.20 and then 13.00, resistance seen near 13.40 and then 13.46.