Is the Tone in Emerging Markets Taking a Positive Turn?

EM is starting the week on a good footing.  Aside from the recovery within global risk appetite, the uptick in commodity prices and also the broader weaker tone within the dollar, we think the price action in Brazil has helped EM more generally.  In our view, the (relatively) positive news flows and the subsequent strong move in all asset classes helps to change the tone for EM.  The question is whether it can last (a question we will address in an approaching report).  While it is far too earlier to say that EM has turned a corner, it looks as if we are reaching a more older stage of the re-pricing, where 2-way danger become more prevalent.

Mexico central bank will release minutes from its September meeting on today at 15:00 GMT.  The statement then was superbly dovish, and so would expect the minutes to have a similar sculpt.  Mexico reports September customer confidence Tuesday, and wants at 91.4 versus. 90.4 in August.  It then reports September CPI Thurs, and expects to rise 2.56% y/y vs. 2.59% in August.  With inflation below the 3% target (but within the 2-4% target variety) and growth sluggish, there is no need for the central bank to think about tightening policy.  Next coverage meeting is October 29 and we see no change.

Colombia reports September CPI later today, and expects to rise Five.0% y/y vs. 4.74% in July.  Though inflation is shifting further above the 2-4% target variety, we do not expect an aggressive tightening up cycle after the recent surprise 25 bp hike.  Peru, who also hiked last month, has already said it sees no need to moving once again for a couple of meetings.  We believe Colombia will take a similar approach.  Subsequent policy meeting is October 30, and we think moving then is unlikely.

Philippines reports Sept CPI Tuesday, and expects to stay steady at 0.6% y/y.  Despite being well below the 2-4% focus on range, it has been on maintain since the last 25 bp hike back in September 2014.  July exports will report Friday, and expect to contract -2.9% y/y vs. -1.8% within July.  The economy is actually holding up relatively well but is still slowing a bit.  If these macro trends continue, we think the central bank will tilt more dovish.  Next policy meeting is November Twelve, and no change expects after that.

Czech Republic reports August trade Tuesday, and expects at CZK2.1 bln vs. CZK6.8 bln in This summer.  It then reports August list sales (7.5% y/y consensus) in addition to construction and industrial output (9.1% y/y consensus) Wednesday.  Lastly, it reports September CPI Fri and expects to remain steady at 0.3% y/y.  With deflation risks still present, we expect the CZK floor to hold until at least H2 2016.  However, officials tend to be hinting of the need for additional moves.

Poland central bank meets Tuesday and expects to keep rates steady at 1.5%.  The bank has been on maintain since March.  September CPI arrived lower than expected at -0.8% y/y versus. -0.6% in August.  Deflation remains persistent and it should prevent the main bank from tightening until well into 2016.   In addition, if the downside risks to the economy increase enough, we would not really rule out a resumption of the easing cycle.

Taiwan reports September CPI Thursday, and expects at -0.5% y/y versus. -0.45% in August.  It also reviews September trade Wednesday, with exports expected at -11.2% y/y and imports at -13.5% y/y.  With deflation persistent and the economy sluggish, the recent 12.5 bp cut in policy rates was not a surprise.  We expect easing to continue in the coming quarters.  We also think we will see fiscal stimulus.

Malaysia reports July trade Wednesday.  In MYR conditions, exports expect to rise 1.2% y/y and imports expect to rise 1.7% y/y.  Nevertheless, in USD, both might contract -24% y/y.  The World Bank simply warned that Malaysia’s growth outlook tilts to the downside, as well as noted that political risk is weighing on the country’utes financial markets.  Next central bank policy meeting is The fall of 5, keeping rates from 3.25% since the last 25 bp hike in July 2014.  If the growth outlook worsens, we think the bank will tip more dovish.  However, this may be a 2016 story.

Hungary reports August IP Thursday, and expects to rise Eight.3% y/y vs. 3.4% in This summer.  IP data for July was weaker than expected, rising only 4.7% y/y.  Central bank minutes come on Wednesday.  Hungary then reports September CPI Thurs, and expects at -0.1% y/y vs. flat y/y in August.  With deflation risks building, we would not rule out resumption in the easing cycle.  However, the next meeting on October 20 is too quickly.  August trade reports Friday.

Chile reports September trade Thursday, with exports expected at -12% y/y as well as imports at -5% y/y.  It then reports September CPI Thursday, and expects to rise 4.9% y/y vs. 5.0% in August.  Like Peru and Colombia, Chile’s central bank has moved more hawkish and appears likely to backpack rates too.  Next policy meeting is October Fifteen, and markets are looking for a 25 bp hike to 3.25% after that.

Brazil reports September IPCA inflation Thursday, and expects to rise Nine.48% y/y vs. 9.53% in July.  Higher fuel prices lately announced by Petrobras should put upward pressure on rising cost of living, and so there may be a need for further tightening.  The first preview for October IGP-M wholesale inflation is going to be released Friday, and wants to rise 9.1% y/y vs. Eight.4% in September.  While the panic has abated a bit, markets are still pricing in several rate hikes ahead that would take the SELIC rate up to 15.75% from Fourteen.25% currently.  Next policy meeting is October 21, however a move then seems too early.

Turkey reports August IP Thursday, and expects to rise 2.1% y/y vs. 0.3% in This summer.  September CPI came in higher than expected, rising 7.95% and shifting further above the target variety.  Yet the central bank is actually under pressure not to tighten due to the sluggish economy.  Next coverage meeting is October 21.  If inflation pressures still rise, we think there is a need for more conventional measures.

South Africa reports August manufacturing manufacturing Thursday, and expects to increase 1.4% y/y vs. 5.6% within July.  September CPI will not statement until October 21, but inflation could fall further from 4.6% y/y in July.  The SARB kept rates steady in September after resuming the tightening cycle in July.  The sluggish economic climate is likely to keep this cycle a mild one.  The next policy meeting is November 19, and the decision then will depend on upcoming data and the performance from the rand.

Emerging Markets: Week Ahead Preview is republished with permission through Marc to Market