(from my colleagues Dr. Win Thin and Ilan Solot)
EM assets are starting the week on the front foot under the favorable constellation of a weaker dollar, stronger stocks and the unexpected result of the presidential elections in Brazil. In addition, after nearly a month of losses (MSCI EM is down nearly 10% from its peak), one also has to assume that positioning is a lot lighter. If the bounce in EM continues, we would expect the higher-beta currencies such as TRY and ZAR to lead the way, and could give us a good opportunity to re-enter relative value trades with these currencies on the short end against stronger EMs. However, we remain reluctant to enter into any straight long EM/USD trades given the likelihood that the strong dollar trade vs. the majors remains intact.
Taiwan reports September CPI Tuesday, expected to rise 1.5% y/y vs. 2.07% in August. It then reports September trade on Tuesday, with exports seen up 8.5% y/y and imports seen up 4.5% y/y. The region faces some downside risks due to the China slowdown, and so we believe policymakers will tilt dovish in the coming months.
Philippines reports September CPI Tuesday, expected to rise 4.5% y/y vs. 4.9% in August. On Friday, it reports August exports that are expected to rise 8.1% y/y vs. 12.4% in July. With inflation likely to return back towards the 4% target and commodity prices still falling, we think the central bank will become less hawkish. It has hiked rates twice by 25 bp each, and could conceivably take a wait and see approach in Q4.
Bank Indonesia meets Tuesday and is expected to keep rates steady at 7.5%. With food and energy prices easing, we believe the central bank can be a bit less hawkish in the coming months. On the fiscal side, falling commodity prices should allow the government to cut fuel subsidies like neighboring Malaysia just did. This too would be positive for the fiscal accounts.
Malaysia reports August trade Tuesday, with exports seen -1.4% y/y and imports +0.4%. On Friday, it reports August IP, expected to rise 5.1% y/y vs. 0.5% in July. The fiscal outlook has improved with the recent decision to cut fuel subsidies. With price pressures likely to remain low and headwinds likely to rise, we think the central bank will remain on hold in Q4.
Hungary reports August IP Tuesday, expected to rise 12.2% y/y vs. 12.3% in July. The central bank releases minutes from its last meeting on Wednesday. On Thursday, Hungary reports August trade, with the surplus expected at EUR540 mln vs. EUR482 mln in July. This will be followed by September CPI on Friday, expected at -0.3% y/y vs. +0.2% in August. Though deflationary risks remain in play, the recovery is intact and should allow steady rates for the time being.
Czech Republic reports August IP, trade, and construction on Tuesday. IP is seen rising 1.0% y/y while the trade surplus is expected at CZK6 bln. On Thursday, it reports September CPI, expected to rise 0.9% y/y vs. 0.6% in August. While the recovery is intact, headwinds are picking up and should keep the central bank on hold through much of 2015.
Chile reports September trade on Tuesday, with the surplus seen at $250 mln vs. $356 mln in August. On Wednesday, it reports September CPI, expected to rise 4.8% y/y vs. 4.5% in August. This would be a new high for the cycle, and may force the central bank to put its easing cycle on hold. For now, Chile policymakers are struggling with both weak growth and above-target (2-4%) inflation.
Brazil reports September IPCA inflation Wednesday, expected to rise 6.65% y/y vs. 6.51% in August. Even though inflation at the wholesale and PPI level has fallen sharply, consumer inflation remains stubbornly high. Here too, policymakers are grappling with weak growth and above-target (2.5-6.5%) inflation. We do not see any interest rate moves for the time being. The weekend election will have to be followed up by a second round vote between Dilma and Aecio October 26. It seems a bit of a stretch to assume that Marina’s supporters will gravitate to Aecio, and so we scope for disappointment ahead for the markets.
Polish central bank meets Wednesday and is widely expected to cut rates 25 bp to 2.25%. Indeed, a handful look for a 50 bp cut to 2.0%. After the September meeting, Governor Belka pretty much set the stage for imminent and multiple rate cuts. Deflationary risks remain strong, and so the central bank is right to be proactive with its policy.
South Africa reports August manufacturing production Thursday, expected at -3.9% y/y vs. -7.9% in July. This sounds like a familiar refrain, but South African policymakers are dealing with sluggish growth and above target inflation. After a delay in naming SARB Governor Marcus’ replacement, the choice of Deputy Governor Kganyago suggests continuity in policy. Still, with commodity prices falling, we think the SARB can remain on hold in Q4.
Mexico reports September CPI Thursday, expected to rise 4.24% y/y vs. 4.15% in August. ANTAD reports September retail sales Thursday too, expected to rise 2.1% y/y vs. 3.7% in August. Consumer confidence rose in September to its highest level in a year, and this is being reflected in stronger domestic consumption. While we see no more rate cuts, neither do we see any rate hikes anytime soon. Mexico reports August IP on Friday, with growth expected to remain steady at 2.1% y/y.
Peru central bank meets Thursday and is expected to keep rates steady at 3.5%. A small handful of analysts are looking for a 25 bp cut to 3.25%. After a period of elevated inflation, CPI has finally fallen back into the 1-3% target range in August and September. The central bank has cut rates very cautiously over the past year, and never two months in a row. So after delivering a 25 bp cut in September, we expect steady rates this month with a bias to cut again in Q4.
Turkey reports August IP on Friday, expected to rise 5.7% y/y vs. 3.6% in July. The economy remains weak, which perhaps helped to deliver a downside surprise to September inflation last week. Yet the weak lira will keep inflation risks front and center. Lower energy and commodity prices will help, but for now, we see steady monetary policy from the central bank.
India reports August IP on Friday. The impact of the poor monsoon season has yet to be felt, and so we think the RBI will remain cautious. Lower energy prices are a good development, but this will be offset by upside risks to food inflation in India. Modi was fortunate enough to inherit an economy that was already bottoming, with growth expected to pick up in 2015.
EM assets are starting the week on the front foot under the favorable constellation of a weaker dollar, stronger stocks and the unexpected result of the presidential elections in Brazil. In addition, after nearly a month of losses (MSCI EM is down nearly 10% from its peak), one also has to assume that positioning is a lot lighter. If the bounce in EM continues, we would expect the higher-beta currencies such as TRY and ZAR to lead the way, and could give us a good opportunity to re-enter relative value trades with these currencies on the short end against stronger EMs. However, we remain reluctant to enter into any straight long EM/USD trades given the likelihood that the strong dollar trade vs. the majors remains intact.
Taiwan reports September CPI Tuesday, expected to rise 1.5% y/y vs. 2.07% in August. It then reports September trade on Tuesday, with exports seen up 8.5% y/y and imports seen up 4.5% y/y. The region faces some downside risks due to the China slowdown, and so we believe policymakers will tilt dovish in the coming months.
Philippines reports September CPI Tuesday, expected to rise 4.5% y/y vs. 4.9% in August. On Friday, it reports August exports that are expected to rise 8.1% y/y vs. 12.4% in July. With inflation likely to return back towards the 4% target and commodity prices still falling, we think the central bank will become less hawkish. It has hiked rates twice by 25 bp each, and could conceivably take a wait and see approach in Q4.
Bank Indonesia meets Tuesday and is expected to keep rates steady at 7.5%. With food and energy prices easing, we believe the central bank can be a bit less hawkish in the coming months. On the fiscal side, falling commodity prices should allow the government to cut fuel subsidies like neighboring Malaysia just did. This too would be positive for the fiscal accounts.
Malaysia reports August trade Tuesday, with exports seen -1.4% y/y and imports +0.4%. On Friday, it reports August IP, expected to rise 5.1% y/y vs. 0.5% in July. The fiscal outlook has improved with the recent decision to cut fuel subsidies. With price pressures likely to remain low and headwinds likely to rise, we think the central bank will remain on hold in Q4.
Hungary reports August IP Tuesday, expected to rise 12.2% y/y vs. 12.3% in July. The central bank releases minutes from its last meeting on Wednesday. On Thursday, Hungary reports August trade, with the surplus expected at EUR540 mln vs. EUR482 mln in July. This will be followed by September CPI on Friday, expected at -0.3% y/y vs. +0.2% in August. Though deflationary risks remain in play, the recovery is intact and should allow steady rates for the time being.
Czech Republic reports August IP, trade, and construction on Tuesday. IP is seen rising 1.0% y/y while the trade surplus is expected at CZK6 bln. On Thursday, it reports September CPI, expected to rise 0.9% y/y vs. 0.6% in August. While the recovery is intact, headwinds are picking up and should keep the central bank on hold through much of 2015.
Chile reports September trade on Tuesday, with the surplus seen at $250 mln vs. $356 mln in August. On Wednesday, it reports September CPI, expected to rise 4.8% y/y vs. 4.5% in August. This would be a new high for the cycle, and may force the central bank to put its easing cycle on hold. For now, Chile policymakers are struggling with both weak growth and above-target (2-4%) inflation.
Brazil reports September IPCA inflation Wednesday, expected to rise 6.65% y/y vs. 6.51% in August. Even though inflation at the wholesale and PPI level has fallen sharply, consumer inflation remains stubbornly high. Here too, policymakers are grappling with weak growth and above-target (2.5-6.5%) inflation. We do not see any interest rate moves for the time being. The weekend election will have to be followed up by a second round vote between Dilma and Aecio October 26. It seems a bit of a stretch to assume that Marina’s supporters will gravitate to Aecio, and so we scope for disappointment ahead for the markets.
Polish central bank meets Wednesday and is widely expected to cut rates 25 bp to 2.25%. Indeed, a handful look for a 50 bp cut to 2.0%. After the September meeting, Governor Belka pretty much set the stage for imminent and multiple rate cuts. Deflationary risks remain strong, and so the central bank is right to be proactive with its policy.
South Africa reports August manufacturing production Thursday, expected at -3.9% y/y vs. -7.9% in July. This sounds like a familiar refrain, but South African policymakers are dealing with sluggish growth and above target inflation. After a delay in naming SARB Governor Marcus’ replacement, the choice of Deputy Governor Kganyago suggests continuity in policy. Still, with commodity prices falling, we think the SARB can remain on hold in Q4.
Mexico reports September CPI Thursday, expected to rise 4.24% y/y vs. 4.15% in August. ANTAD reports September retail sales Thursday too, expected to rise 2.1% y/y vs. 3.7% in August. Consumer confidence rose in September to its highest level in a year, and this is being reflected in stronger domestic consumption. While we see no more rate cuts, neither do we see any rate hikes anytime soon. Mexico reports August IP on Friday, with growth expected to remain steady at 2.1% y/y.
Peru central bank meets Thursday and is expected to keep rates steady at 3.5%. A small handful of analysts are looking for a 25 bp cut to 3.25%. After a period of elevated inflation, CPI has finally fallen back into the 1-3% target range in August and September. The central bank has cut rates very cautiously over the past year, and never two months in a row. So after delivering a 25 bp cut in September, we expect steady rates this month with a bias to cut again in Q4.
Turkey reports August IP on Friday, expected to rise 5.7% y/y vs. 3.6% in July. The economy remains weak, which perhaps helped to deliver a downside surprise to September inflation last week. Yet the weak lira will keep inflation risks front and center. Lower energy and commodity prices will help, but for now, we see steady monetary policy from the central bank.
India reports August IP on Friday. The impact of the poor monsoon season has yet to be felt, and so we think the RBI will remain cautious. Lower energy prices are a good development, but this will be offset by upside risks to food inflation in India. Modi was fortunate enough to inherit an economy that was already bottoming, with growth expected to pick up in 2015.
Emerging Markets: Week Ahead Preview
Reviewed by Marc Chandler
on
October 06, 2014
Rating:
Reviewed by Marc Chandler
on
October 06, 2014
Rating:
