Emerging Markets: Preview of the Week Ahead

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

There were few notable developments out of the G20 meeting that would directly impact EM markets. However, the escalating tensions with Russia made evident in the meeting have increased to the point that it could again lead to spillover effects. Separately, the political climate in Brazil is heating up again and starting to feel like a “3rd round” in the electoral dispute. President Dilma is coming under huge pressure to appoint a finance minister, while the corruption scandal surrounding Petrobras deepens further.

Chile reports Q3 GDP and current account Tuesday. Growth is seen slowing to 0.9% y/y from 1.9% in Q2. The central bank meets later that day and is expected to keep rates steady at 3.0%. Despite slowing growth, CPI rose 5.7% y/y in October and was the highest rate since January 2009. This is well above the 2-4% target range and should keep the bank on hold until inflation starts moving back towards that range.

South Africa reports October CPI Wednesday, expected to remain steady at 5.9% y/y. The Reserve Bank then meets Thursday and is expected to keep rates steady at 5.75%. This will be the first meeting under new Governor Kganyago. Of the 22 analysts polled by Bloomberg, 6 are looking for a 25 bp hike to 6.0%. With inflation back in the 3-6% target range and growth still sluggish, we do not think the tightening cycle will continue so soon under Kganyago.

Brazil reports mid-November IPCA inflation Wednesday, expected to rise 6.57% y/y vs. 6.62% in mid-October. Price pressures at the wholesale and PPI level have been easing for several months now, and hopefully consumer prices will follow them lower. The situation is complicated a bit by the recent hike in domestic fuel prices, which could keep inflation elevated near-term. The central bank is thus likely to hike rates by 25 bp again at the December meeting.

Banco de Mexico releases its quarterly inflation report on Wednesday. Mexico then reports September INEGI retail sales on Thursday. ANTAD sales have already been reported at -2.1% y/y for September and so there is some downside risk to the INEGI reading. However, ANTAD sales rebounded and rose 2.1% y/y in October. Mexico then reports Q3 GDP on Friday, expected to rise 2.3% y/y vs. 1.6% in Q2.

HSBC reports flash China PMI for November on Thursday, expected at 50.2 vs. 50.4 in October. Weaker than expected China data last week weighed on market sentiment. New yuan loans came in at CNY548.3 bln vs. CNY626.4 bln consensus, while aggregate financing came in at CNY662.7 bln vs. CNY887.5 bln consensus. Money growth, IP, and retail sales were all slightly slower than expected. We still see more targeted stimulus out of China, but no rate cuts or other large-scale stimulus measures.

Taiwan reports October export orders and Q3 current account Thursday. Orders are seen rising 10.3% y/y vs. 12.7% in September, and have been picking up recently. However, the weak yen is an issue, and could start negatively impacting exports and export orders in the coming months. Indeed, October exports rose a weaker than expected 0.7% y/y and was the weakest undistorted rate since October 2013.

Central Bank of Turkey meets Thursday and is expected to keep rates steady. A very small handful of analysts are looking for easing to resume, but we think it’s too early still. CPI rose 9.0% y/y in October vs. 8.9% in September, well above the 3-7% target range. Elsewhere, vulnerabilities are easing a bit as the external accounts benefit from lower oil prices. The 12-month current account gap fell to -$46.7 bln in September, the lowest since December 2010.

Poland reports October IP Thursday, expected to rise 1.4% y/y vs. 4.2% in September. Later that day, the central bank also releases minutes from its last meeting. Poland GDP grew 3.3% y/y in Q3, and may help justify the decision of the central bank to surprise markets with a pause in the easing cycle. That said, CPI for October (a less backward looking indicator than GDP) came in at -0.6% y/y, so we are not convinced there will be no more easing in Poland.

Malaysia reports October CPI Friday, expected to rise 3.0% y/y vs. 2.6% in September. The increase is due largely to a 10% rise in fuel prices that month, as the government reduced subsidies in an effort to narrow the budget gap. The economy is slowing, as Q3 GDP growth came in at 5.6% y/y vs. 6.5% in Q2. With consumption likely to slow as a result of increased fuel prices, we think the central bank will remain on hold for now. If has kept rates steady since the first and only 25 bp rate hike back in July.