EM FX closed Friday on a soft note, capping off a mostly weaker performance for the entire week. US rates and rate hike expectations remain elevated. While that has not really helped the dollar against the majors, it has against EM FX. FOMC meeting Wednesday will be a test for US rates markets.
Singapore reports August trade Monday. NODX are expected to rise 11.8% y/y vs. 8.5% in July. The economy has been strengthening, but inflation remains very low. The next MAS meeting is in October. While no change to the S$NEER is expected, the MAS may tweak its language to signal an adjustment at the April meeting.
Hungary central bank meets Tuesday and is expected to keep rates steady at 0.90%. However, we think the bank is likely to ease further by unconventional means. It has reduced the cap on commercial bank access to 3-month deposits quarterly, and will likely do so again at this meeting.
Poland reports August industrial and construction output, PPI, and real retail sales Tuesday. Consensus y/y gains are 5.9%, 24.0%, 3.0%, and 6.7%, respectively. While the economy remains robust, central bankers remain extraordinarily dovish. Some officials are saying no hikes at all in 2018. Next policy meeting is October 4, no change seen then.
Malaysia reports August CPI Wednesday, which is expected to rise 3.1% y/y vs. 3.2% in July. Bank Negara doesn’t have an explicit inflation target, but falling price pressures should allow it to keep rates on hold for now. Next policy meeting is November 9, no change seen then.
Taiwan reports August export orders Wednesday, which are expected to rise 8.5% y/y vs. 10.5% in July. The central bank then meets Thursday and is expected to keep rates steady at 1.375%. Taiwan reports August IP Friday, which is expected to rise 2% y/y vs. 2.38% in July. The economic outlook remains solid, but low inflation should allow the central bank to remain on hold for now.
South Africa reports August CPI Wednesday, which is expected to rise 4.9% y/y vs. 4.6% in July. This would still be within the 3-6% target range. SARB then meets Thursday and is expected to cut rates 25 bp to 6.5%. Lower rates and a widening current account deficit that’s financed by hot money is not a good combination.
Korea reports trade data for the first 20 days of August Thursday. Export growth has been robust, but imports are growing even faster. This has led to slight deterioration of the external balances. Still, exporters should be happy that the key JPY/KRW cross remains firmly above 10.
Philippine central bank meets Thursday and is expected to keep rates steady at 3.0%. Inflation was 3.1% y/y in August, just above the 3% target and within the 2-4% target range. The economic outlook remains good, but Moody’s noted that political risk is rising. Indeed, Defense Secretary Lorenzana said President Duterte is still considering declaring martial law in the entire country.
Brazil central bank releases its quarterly inflation report Thursday. Brazil also reports mid-September IPCA inflation that same day, which is expected at 2.57% y/y vs. 2.68% in mid-August. COPOM signaled a slower pace of easing ahead, and so we look for a 75 bp cut to 7.5% at the October 25 meeting followed by a 50 bp cut to 7.0% at the December 6 meeting.
Bank Indonesia meets Friday and is expected to keep rates steady at 4.5%. Inflation was 3.8% y/y in August, just below the 4% target and within the 3-5% target range. BI surprised markets with a 25 bp cut at the August 22 meeting, but another cut so soon seems unlikely. We believe another cut will be seen in Q4, however. High yields have attracted foreign portfolio investment, but more rates will surely impact these inflows.
Mexico reports mid-September CPI Friday, which is expected to rise 6.60% y/y vs. 6.59% y/y in mid-August. Inflation remains well above the 3% target and the 2-4% target range, but appears to be topping out as August full month reading was 6.7%. Bloomberg consensus sees the first rate cut in Q2 2018, and we concur. Next policy meeting is September 28, no change seen then.