EM Preview for the Week Ahead

EM FX ended Friday mixed, but capped off a generally firmer week as a whole. We think the EM-negative drivers remain in play: rising US interest rates and heightened trade tensions. FOMC meeting will be the key event this week, but the response to the implementation of US and Chinese tariffs will be a close second.

Singapore reports August CPI Monday, which is expected to rise 0.7% y/y vs. 0.6% in July. While the MAS does not have an explicit inflation target, low price pressures should allow it to remain on hold at its next semiannual policy meeting in October. August IP will be reported Wednesday, which is expected to rise 4.5% y/y vs. 6.0% in July.

Mexico reports mid-September CPI Monday, which is expected to rise 4.99% y/y vs. 4.81% in mid-August. Inflation remains above the 2-4% target range and has been accelerating again in recent months. This should keep Banco de Mexico in cautious mode, though we do not expect another hike at this juncture. Next policy meeting is October 4, no change is expected then. August trade will be reported Thursday, which is expected at -$3.5 bln.

Brazil reports August current account and FDI data Monday. COPOM minutes will be released Tuesday, while the quarterly inflation report will be released Thursday. The language in the COPOM statement last week sets up a start of the tightening cycle at the next meeting on October 31. IPCA inflation was 4.28% y/y in mid-September. Central government budget data will also be reported Thursday. Consolidated budget data will be reported Friday.

Taiwan reports August IP Tuesday, which is expected to rise 0.6% y/y vs. 4.4% in July. The central bank meets Thursday and is expected to keep rates steady at 1.375%. Inflation was 1.5% y/y in August. While the central bank does not have an explicit inflation target, low price pressures should allow it to remain on hold into 2019.

Czech National Bank meets Wednesday and is expected to hike rates 25 bp to 1.5%. CPI rose 2.5% y/y in August, above the 2% target but within the 1-3% target range. Despite hiking three straight meetings and a firmer koruna, central bank officials are still signaling that rates will continue rising. Next meetings after this week are November 1 and December 20.

Bank Indonesia meets Thursday and is expected to hike rates 25 bp to 5.75%. Of the 31 analysts polled by Bloomberg, 2 see no change, 23 see a 25 bp hike, and 6 see a 50 bp hike to 6.0%. CPI rose 3.2% y/y in August, still below the 3.5% target and within the 2.5-4.5% target range. However, the rupiah has been under pressure and so BI would do well to get further ahead of the curve.

Bangko Sentral ng Pilipinas meets Thursday and is expected to hike rates 50 bp to 4.5%. CPI rose 6.4% y/y in August, well above both the 3% target and the 2-4% target range. BSP remains behind the curve and needs to act aggressively to get ahead of it. The economy remains robust enough to handle a more aggressive pace of tightening.

Argentina reports Q2 current account data Thursday. The economy is headed into recession and so the external accounts are likely to improve. However, inflation is likely to move significantly higher and we suspect the peso is likely to remain under pressure. Reports of an expanded IMF deal boosted the peso last week, but markets await more details.

Caixin reports September China manufacturing PMI Friday, which is expected at 50.5 vs. 50.6 in August. Over the weekend, official September PMI will be reported and is expected to fall to 51.1 from 51.3 in August. For now, markets appear to be comfortable with the policy response to the slowing economy. However, the trade war with the US is a wild card that must be watched closely. US tariffs go into effect Monday, with China expected to announce retaliatory measures that same day.

South Africa reports August money and loan data as well as trade and budget balances Friday. For now, the hawkish hold by the SARB coupled with some generalized improvement in EM sentiment has helped the rand to gain. However, the fiscal outlook remains shaky due to the deeper than expected slowdown in the economy.

Turkey reports August trade Friday, which is expected at -$2.5 bln. Slowing growth has led to a collapse in imports, and so the external accounts are likely to continue improving. However, inflation is likely to move significantly higher and we suspect another response by the central bank is unlikely near-term. As such, we see the lira remaining under pressure.

Colombia central bank meets Friday and is expected to keep rates steady at 4.25%. CPI rose 3.1% y/y in August, above the 3% target but within the 2-4% target range. The economy is gaining momentum, and so the central bank will remain in cautious wait-and-see mode for now. Consensus sees the first rate hike coming in Q1, which seems reasonable to us.