EM ended the week on a firmer note, with risk sentiment boosted by press reports that the German bank had negotiated a penalty of $5.4 bln vs. $14 bln originally announced by the US Department of Justice. The main event this week is Friday’s US jobs report. A strong number is needed to help chip away at the dovish market take on the Fed.
China is closed all week on holiday. Many EM countries will report September CPI data, with most likely to show accelerating inflation. This is similar to what we’re seeing in DM as well. The Indian and Polish central banks meet, with neither expected to change policy. We think EM will be driven in large part by political developments.
Indonesia reports September CPI Monday, which is expected to rise 3.05% y/y vs. 2.79% in August. This would be back in the 3-5% target range but still supports further easing. Bank Indonesia next meets October 20. It cut rates 25 bp in September, but two months in a row may be too much. Still, another cut in Q4 seems likely.
Thailand reports September CPI Monday, which is expected to rise 0.4% y/y vs. 0.3% in August. This would be below the 1-4% target range and supports further easing if needed. For now, the economy is fairly robust. Bank of Thailand next meets November 9 and is expected to keep rates steady at 1.5%. It’s been on hold since the last 25 bp cut back in April 2015.
Turkey reports September CPI Monday, which is expected to rise 7.90% y/y vs. 8.05% in August. This would still be above the 3-7% target range and should limit further easing. Central Bank of Turkey next meets October 20. While another 25 bp cut in the overnight lending rate is likely, the benchmark rate is likely to be kept steady at 7.5%.
Brazil reports September trade Monday. It then reports August IP Tuesday. It then reports September IPCA inflation Friday, which is expected to rise 8.6% y/y vs. 8.97% in August. COPOM next meets October 19, and is widely expected to start the easing cycle then. Yet August fiscal data was horrible. The government needs to make some good progress on fiscal reforms before the central bank eases.
Reserve Bank of India meets Tuesday and is expected to keep rates steady. This will be the first meeting under new Governor. CPI rose 5.1% y/y in August, which is near the top of the 2-6% target range. This should prevent any near-term easing, especially if the rupee remains under pressure due to increased tensions with Pakistan. It’s been on hold since the last 25 bp cut back in April.
Korea reports September CPI Wednesday, which is expected to rise 0.7% y/y vs. 0.4% in August. This would still be below the 1-3% target range and supports further easing. Bank of Korea next meets October 13, and no change is expected then. It’s been on hold since the last 25 bp cut back in June, but is likely to maintain a dovish stance until the economy gets stronger.
Taiwan reports September CPI Wednesday, which is expected to 0.30% y/y vs. 0.57% in August. The central bank does not have an explicit inflation target, and just kept rates steady at 1.375%. This broke a string of four straight quarterly cuts, though we view this as a pause in the easing cycle and not the end. It reports September trade Friday. Exports are expected to rise 2.2% y/y and imports are expected to rise 8.0% y/y.
The Philippines reports September CPI Wednesday, which is expected to rise 2.1% vs. 1.8% in August. This would be back in the 2-4% target range, but still supports further easing if needed. The central bank next meets November 10 and is likely to keep rates steady then. It’s been on hold since the last 100 bp cut back in May, when it moved to a rates corridor.
Colombia reports September CPI Wednesday, which is expected to rise 7.45% y/y vs. 8.10% in August. This is still well above the 2-4% target range and should prevent any near-term easing. The central bank just kept rates steady at 7.75% last week. It next meets October 31, and is likely to keep rates steady then too. We think an easing cycle is a 2017 story.
National Bank of Poland meets Wednesday and is expected to keep rates steady at 1.5%. CPI came in at -0.5% y/y in September, well below the 1.5-3.5% target range. August data so far has recovered a bit from July weakness, but policymakers will have leeway to ease further if needed.
Czech Republic reports August trade, industrial, and construction output Friday. July data was soft and so policy makers are looking for a rebound in August. Yet the central bank seems more confident of the koruna cap exit near mid-2017. Much will depend on German growth, since it is the biggest export market for Czech Republic.
Hungary reports August trade and IP Friday. July data was soft, and helped prompt the central bank into using unconventional measures at its September meeting. If the data do not pick up, further easing measures appear likely.
Chile reports September CPI and trade Friday. CPI is expected to remain steady at 3.4% y/y. This would be within the 2-4% target range and supports steady rates for now. We think easing is a 2017 story. The central bank next meets October 18 and is expected to keep rates steady at 3.5%.
Mexico reports September CPI Friday, which is expected to rise 2.91% y/y vs. 2.73% in August. This would still be below the 2-4% target range but it has been rising. After last week’s decision to hike rates 50 bp to 4.75%, we see potential for further tightening. Banco de Mexico next meets November 18. Whether it hikes again then will depend in large part on how the peso is trading.
Caixin reports China services and composite PMI Friday after US markets close. Chinese markets will be closed all this week for holiday.
Win Thin is the Global Head of Emerging Markets Strategy at Brown Brothers Harriman & Co.