A better mood in equity markets and a softer dollar at the start of the week gives us some hope for a bounce in EM assets, even if short lived. While the focus remains on major markets for now, several local stories - mostly of which political - will continue to play a large role in country-specific performance.
In Brazil, the opposition candidate, Aecio Neves, is gaining momentum against the incumbent Dilma Rousseff, which is a market-positive development. The next major event to watch in Brazil will be the reaction to the first debate in the second round of the race, held tomorrow. In Turkey, the campaign against ISIS on its border with Syria could be a factor on asset prices. While the situation in HK remains far from settled, with demonstrators still staging protests.
Singapore reports Q3 advance GDP on Tuesday, expected at 2.7% y/y vs. 2.4% in Q2. The MAS also meets that same day, and is expected to keep policy steady. However, we see some risk of a dovish surprise given CPI rose a cycle low 0.9% y/y in August. Singapore reports August retail sales on Wednesday, expected to rise 4.3% y/y vs. 5.5% in July. Lastly, it reports September trade on Friday, with NODX expected to rise 2.5% y/y vs. 6.0% in August.
India reports September WPI Tuesday, expected to rise 3.3% y/y vs. 3.74% in August. On Monday, it reported September CPI at XXX vs. 7.2% consensus and 7.8% in August. For now, price pressures should continue easing but we don’t think the RBI is ready to cut rates yet.
Poland reports August trade and current account data Tuesday. Exports have remained firm so far, but face downside risk ahead. It then reports September CPI on Wednesday, seen at -0.4% y/y vs. -0.3% in August. Govenor Belka said the bank should be finished cutting rates by year-end. There are two meetings left on November 5 and December 3. Cuts of 25 bp at each would be about right, for a total of 100 bp of easing in Q4. Why wait? Real rates have risen over the last several months as a result, and so easing is needed just to offset this. Lastly, Poland reports September IP and PPI on Friday with the former seen rising 2.7% y/y and the latter at -1.5% y/y.
Bank of Korea meets Wednesday and is expected to cut rates 25 bp to 2.0%. Market is a bit split, as 10 analysts polled by Bloomberg see a 25 bp cut, 1 sees a 10 bp cut, and 5 see steady rates. The economy faces headwinds, and we did not think that the 25 bp cut in August was a “one and done” move. The JPY/KRW cross has moved back close to 10, but we think a rate cut this week would be the right move given CPI rose a cycle low 1.1% y/y in September.
China reports September CPI and PPI on Wednesday, with the former seen at 1.7% y/y and the latter at -1.5% y/y. Sometime during the week, China should also report September money and new loan data. New loans are expected at CNY750 bln vs. CNY702.5 bln in August, while aggregate financing expected at CNY1.15 trln vs. CNY957.4 bln in August. We believe the focus for policymakers will remain on boosting growth, with more targeted stimulus to come.
Turkey reports August current account data on Wednesday, expected at -$3.05 bln vs. -$2.63 bln in July. If so, the 12-month total would rise to -$49.1 bln from a cycle low -$48.5 bln in July. The external accounts improved in 2014 due to collapsing imports, which should reverse if growth starts to pick up.
South Africa reports August retail sales, with growth expected to remain steady at 2.4% y/y. With commodity prices falling and the economy still sluggish, we do not think new SARB Governor Kganyago will hike rates at his first meeting November 20. He has pledged continuity with outgoing Governor Marcus, who hiked twice this year – 50 bp in January, 25 bp in July.
Brazil reports August retail sales, expected at -1.3% y/y vs. -0.9% in July. The economy remains weak, yet monetary policy is on hold at 11%. Fiscal policy has been stimulative, but worsening numbers are putting downside risk to Brazil’s sovereign rating.
Israel reports September CPI on Wednesday, seen at -0.1% y/y vs. 0.0% in August. With deflation risks growing and the policy rate at 0.25%, we would not be surprised if the central bank were to consider unorthodox policy measures in the coming months.
Chilean central bank meets Thursday and is expected to cut rates 25 bp to 3.0%. Market is a bit split, as 5 analysts polled by Bloomberg see a 25 bp cut and 3 see steady rates. We see a risk of no move, as CPI inflation spiked up to a cycle high 4.9% y/y in October. That’s well above the 2-4% target, and justifies holding off on another rate cut. Yet the economy remains very weak.
Colombia reports August retail sales and IP. Sales expected to rise 6.1% y/y vs. 5.2% in July.
Emerging Markets: Preview of the Week Ahead
Reviewed by Marc Chandler
on
October 13, 2014
Rating:
Reviewed by Marc Chandler
on
October 13, 2014
Rating:
