EM Preview for the Week Ahead

EM benefited greatly from the improvement in US-China trade relations and quite possibly Brexit.  The dollar is likely to remain under some pressure near-term as a result.  Yet we must caution investors against getting too optimistic.  The details of the partial trade deal still need to be worked out, while existing tariffs will still remain in place if the deal is signed next month as most expect.  Brexit negotiations have accelerated but we note that any deal must still be passed by UK Parliament, which has already scuttled several attempts.  Lastly, geopolitical risks abound in the Middle East.   

China September data deluge comes this week.  Money and new loan data will be reported but no date has been set.  Trade data will be reported Monday, with exports expected to contract -2.8% y/y and imports by -6.0% y/y.  CPI and PPI will be reported Tuesday.  CPI is expected to rise 2.9% y/y and PPI is expected to fall -1.2% y/y.  IP and retail sales will be reported Friday.  The former is expected to rise 5.0% y/y and the latter by 7.8% y/y, both accelerating modestly from August.  Q3 GDP will also be reported Friday, with growth expected to slow a tick to 6.1% y/y.  The economy is likely to continue slowing even with the partial trade deal.  If so, we see more stimulus ahead but believe the PBOC will refrain from outright rate cuts for the time being.

Singapore reports Q3 GDP Monday and growth is expected at 0.2% y/y vs. 0.1% in Q2.  MAS typically holds its semiannual policy meeting that same day.  The MAS does not have an explicit inflation target, but low price pressures and the weak economy should lead it to ease policy by adjusting its S$NEER trading band.  September trade will be reported Thursday, with NODX expected to contract -7.7% y/y vs. -8.9% in August.

India reports September WPI and CPI Monday.  WPI is expected to rise 0.90% y/y and CPI by 3.81% y/y.  If so, CPI inflation would be the highest since July 2018 but still remain in the bottom half of the 2-6% target range.  Next policy meeting is December 5 and another 25 bp cut is likely if inflation pressures remain low.   September trade will be reported Tuesday.  Note the World Bank warned of a “severe” slowdown for India, cutting its growth forecast for FY2019/20 to 6.0% from 7.5% back in April.

Turkey reports August IP Monday, which is expected to contract -0.7% y/y vs. -1.2% in July.  At this point, economic data have become secondary to political risks.  Turkish forces have gone into Syria, leading President Assad to send his troops toward the border for a possible confrontation.  President Trump said he is “ready to go” with more sanctions on Turkey, with Treasury Secretary Mnuchin saying that they will be “very powerful.”  This will likely weigh on the economy in Q4 and beyond.  Elsewhere, the EU is considering a blanket arms embargo on Turkey.

Poland reports August trade and current account data Monday.  September industrial output and PPI will be reported Friday.  PPI is seen slowing to 0.5% y/y from 0.7% in August, suggesting disinflation continues.  For now, the central bank remains on hold but if the economy slows significantly, we believe an easing cycle will begin.  Next policy meeting is November 6, no change is expected then.  Meanwhile, exit polls suggest ruling Law and Justice won another majority in parliamentary elections, giving it another 4-year mandate.

Colombia reports August manufacturing production and retail sales Tuesday.  The former is expected to rise 2.5% y/y and the latter by 7.2% y/y, both slowing a bit from July.  For now, the central bank remains on hold but if the economy slows significantly, we believe an easing cycle will begin.  Next policy meeting is October 31, no change is expected then.  Colombia announced plans to allow over the counter stock lending by early next year in an effort to boost trading on its exchange and deepen its capital markets.

Israel reports September CPI Tuesday and is expected to rise 0.4% y/y vs. 0.6% in August.  If so, inflation would be the lowest since April 2018 and would move further below the 1-3% target range.  Next policy meeting is November 25.  The bank has tilted more dovish the past two meetings and so we believe a cut will become more likely if inflation pressures continue to fall.

Bank of Korea meets Wednesday and is expected to cut rates 25 bp to 1.25%.  The economy remains under pressure from the US-China trade war.  CPI fell -0.4% y/y in September, way below the 2% target and making a rate cut this week pretty much a done deal.  Top chin

South Africa reports August retail sales Wednesday, which are expected to rise 1.7% y/y vs. 2.0% in July.  The economy remains weak and so we were surprised when SARB declined to cut rates at its last meeting.  If the economy slows further, we believe an easing cycle will begin.  Next policy meeting is November 21, and a rate cut is possible then.

Russia reports September IP Wednesday, which is expected to rise 3.0% y/y vs. 2.9% in August.  Real retail sales will be reported Thursday, which are expected to rise 1.0% y/y vs. 0.8% in August.  Inflation fell to 4.0% y/y in September, right at the target.  Next policy meeting is October 25 and a 25 bp cut to 6.75% is expected then.