EM Preview for the Week Ahead

EM FX has taken advantage of broad dollar weakness, with most currencies gaining last week. ARS, TRY, and HUF were the exceptions, not surprisingly. Given the dovish message delivered by Powell at Jackson Hole last week, we expect EM and other risk assets to continue rallying. The US jobs data Friday may provide a gut check, but until then, the party continues.

 AMERICAS

Brazil reports July consolidated budget data Monday. A primary deficit of -BRL87.8 bln is expected. Q2 GDP and August trade will be reported Tuesday, with the economy expected to contract -9.4% q/q vs. -1.5% in Q1. July IP will be reported Thursday and is expected to contract -6.3% y/y vs. -9.0% in June. Next COPOM meeting is September 16 and no change is expected. While it left the door open for further easing, we expect steady rates for the time being.

Chile reports July retail sales and IP Monday. The central bank meets Tuesday and is expected to keep rates steady at 0.50%. The bank has signaled steady rates and ongoing QE for the time being. CPI rose 2.5% y/y in July, the lowest since October and in the bottom half of the 2-4% target range.

Colombia central bank meets Monday and is expected to cut rates 25 bp to 2.0%. Minutes will be released Tuesday. August CPI will be reported Saturday. Inflation is expected at 2.0% y/y vs. 1.97% in July. If so, it would be the first acceleration since March but would remain at the bottom of the 2-4% target range. As such, we expect cautious easing to continue in H2.

 

EUROPE/MIDDLE EAST/AFRICA

Turkey reports July trade and Q2 GDP data Monday. A deficit of -$2.73 bln is expected, while the economy is expected to contract -13.6% q/q WDA vs. +0.6% in Q1. August CPI will be reported Thursday. Inflation is expected at 11.86% y/y vs. 11.76% in July. If so, it would move further away from the 3-7% target range. Next central bank meeting is September 24. For now, the bank is continuing with its backdoor tightening, pushing average cost of funding above 10% for the first time since March 19.

Poland reports August CPI Tuesday. Inflation is expected to remain steady at 3.0% y/y. If so, it would remain near the top of the 1.5-3.5% target range. Next central bank meeting is September 15 and no change is expected. The bank has signaled steady rates and ongoing QE for the time being.

Russia reports August CPI Tuesday. Inflation is expected to remain steady at 3.4% y/y. If so, it would remain the highest since November but still below the 4% target. Next central bank meeting is September 18 and a 25 bp cut to 4.0% is expected.

 

ASIA

Korea reported July IP Monday. It contracted -2.5% y/y vs. -2.0% expected and -0.5% in June. August trade will be reported Tuesday, with exports expected to contract -9.5% y/y vs. -7.1% in July and imports by -14.9% y/y vs. -11.6% in July. August CPI will be reported Wednesday. Inflation is expected at 0.5% y/y vs. 0.3% in July. If so, it would be the highest since March but still well below the 2% target. Next central bank meeting is October 14. At its last couple of meetings, the bank has hinted at the possibility of unconventional policy. If the economy remains weak, expect some possible clarification of its stance next month.

China reported official August PMIs Monday. Manufacturing fell a tick to 51.0, while non-manufacturing rose a full point to 55.2 and dragged the composite PMI up to 54.5 from 54.1 in July. Caixin reports its August China manufacturing PMI Tuesday, which is expected to fall to 52.5 from 52.8 in July, followed by its services and composite PMIs Thursday. The economy continues to recover, and so policymakers are likely to remain on hold for the time being.

India reports Q2 GDP Monday. The economy is expected to have contracted -18.0% y/y vs. +3.1% in Q1. Despite the weak economy, CPI rose 6.93% y/y in July, the highest since April and well above the 2-6% target range. Rising inflation led the RBI to unexpectedly keep rates steady at its August 6 meeting, when a 25 bp was expected. Next central bank meeting is October 1 and much will depend on whether inflationary pressures have eased then.

Indonesia reports August CPI Tuesday. Inflation is expected at 1.40% y/y vs. 1.54% in July. If so, it would be the lowest since May 2000. Despite low price pressures, Bank Indonesia left rates steady August 19, as expected. Next central bank meeting is September 17. If inflation continues to fall, we would expect a 25 bp cut.

Philippines reports August CPI Friday. Inflation is expected to remain steady at 2.7% y/y. If so, it would remain the highest since January but still in the bottom half of the 2-4% target range. Rising inflation led the central bank to keep rates steady at its August 6 meeting, as expected. Next central bank meeting is October 1. If inflation remains under control, we would expect a 25 bp cut.