Emerging Market Preview: The Week Ahead

 (from my colleague Dr. Win Thin) 

 

Bank Indonesia meets Tuesday and is expected to keep rates steady at 7.25%.  While the bank has served up several hawkish surprises already this year, easing inflation and a more stable rupiah should allow them to stand pat this month.  September CPI rose 8.4% y/y vs. 9.0% consensus and 8.8% in August, and offers hope that the worst of the pass-through from the weak rupiah and fuel price hikes is now behind us.  Core CPI ticked higher, however.  At 4.7% y/y, this measure is making new highs for the cycle, which argues for BI maintaining a tightening bias ahead.  For USD/IDR, support seen near 11000 and 10500, resistance seen near 11500 and then 11730.

Brazil central bank meets Wednesday and is expected to hike rates 50 bp to 9.5%.  The same day ahead of the decision, Brazil will report September IPCA inflation, expected to ease to 5.86% y/y from 6.09% in August.  If price pressures continue to ease, COPOM may be able to halt its tightening cycle at 9.75%, as many expect.  Minutes from this meeting come out October 17, and will be studied for clues ahead of the November 26/27 meeting.  For USD/BRL, support seen near 2.20 and then 2.10, resistance seen near 2.25 and then 2.30.

Mexico reports September CPI inflation Wednesday, expected at 3.49% y/y vs. 3.46% in August.  Core CPI is seen remaining low at 2.5% y/y vs. 2.4% in August.  On Friday, Mexico reports August IP, expected at 0.2% y/y vs. -0.5% y/y in July.  Combination of weak economy and low inflation has many looking for further Banxico easing, though we think the pace will be very cautious.  The peso will likely remain vulnerable to negative headlines from the US shutdown, but should rally when US fiscal concerns have been addressed.  For USD/MXN, support seen near 13.00 and then 12.80, resistance seen near 13.20 and then 13.40.  

 
Bank of Korea meets Thursday and is expected to keep rates steady at 2.5%.  Disinflation continues (CPI rose only 0.8% y/y in September) and the economy remains sluggish, which we believe raises the odds of a rate cut in Q4.  The firm won is also working to tighten monetary conditions even as the BOK undershoots its 2.5-3.5% inflation target range.  For USD/KRW, support seen near 1070 and then 1060, resistance seen near 1080 and then 1100.

Peru central bank meets Thursday and is expected to keep rates steady at 4.25%.  We think the economy is slowing enough to move the bank into an easing cycle by early 2014.  Inflation is back in the 1-3% range, but still remains high at 2.8% y/y in September and so the bank is likely to remain on hold this month.  However, the bank has shown its dovish bias by cutting reserve requirements this year in order to free up loanable funds.  This could continue this month, and would set the table for a rate cut in the coming months.  For USD/PEN, support seen near 2.75, resistance seen near 2.80.

Monetary Authority of Singapore is likely to hold its meeting over the next week, and it will be a close call.  We see steady policy.  No date has been set yet, but the decision is usually made on the same day of the quarterly GDP advance report, which Bloomberg has coming out on October 14.  Consensus is for -4.1% SAAR (3.8% y/y) vs. +15.5% SAAR (3.8% y/y) in Q2.  Real sector data has come in fairly weak recently, while inflation readings remain subdued.  While we think that the MAS should ease policy, it has been very cautious and so we would not be surprised at all to see steady policy this month.  For USD/SGD, support seen near 1.24 and then 1.23, resistance seen near 1.26 and then 1.27.

China data dump could start this week.  Bloomberg reports that September loan and money supply data as well as Q3 foreign reserves will be released between October 9-15.  September trade is scheduled for October 11-12.  However, September CPI, retail sales, IP, and Q3 GDP will all come out during the week of October 14-18.  Weaker than expected September PMI readings have likely tempered market enthusiasm regarding the economic rebound.  We expect to see continued signs of a modest rebound, and this will underpin the need to keep USD/CNY largely stable in the 6.10-6.15 range.  However, the unexpected weakness of Taiwan September exports (-7% y/y vs. -1.2% consensus and +3.6% in August) is worth noting.  It underscores a growing recognition that the China rebound is unlikely to be robust, and that benefits to the region are likely to be modest.