EM Preview for the Week of September 29, 2024

September 29, 2024

EM FX was mixed last week despite broad dollar weakness against the majors. CLP, THB, and MYR outperformed while MXN, HUF, and PHP underperformed. Market sentiment has been underpinned by stimulus and stabilization measures out of China, but we do not believe they will have much lasting impact on the real mainland economy. EM has also been boosted by dovish Fed easing expectations but key U.S. data this week will test this theme.

AMERICAS

Brazil reports August consolidated budget data Monday. A primary deficit of -BRL21.5 bln is expected vs. -BRL21.3 bln in July. Central government budget data will be reported Thursday and a primary deficit of -BRL22.6 bln is expected vs. -BRL9.3 bln in July. Loose fiscal policy has forced the central bank to take a more hawkish stance. After the initial 25 bp hike to 10.75% in September, the market is now pricing in three straight 50 bp hikes in November, December, and January as well as a terminal rate of 13% over the next 12 months. August IP will be reported Wednesday and is expected at 2.2% y/y vs. 6.1% in July. September trade data will be reported Friday.

Colombia central bank meets Monday and is expected to cut rates 50 bp to 10.25%. However, 7 of the 27 analysts polled by Bloomberg look for a larger 75 bp cut. At the last policy meeting July 31, the bank cut rates 50 bp to 10.75% by a 5-2 vote, with the two dissents in favor of a larger 75 bp cut. Since then, inflation has continued to fall to 6.12% y/y in August, the lowest since December 2021. The swaps market is pricing in 375 bp of total easing over the next 12 months that would see the policy rate bottom near 7.0%. Minutes will be released Thursday.

Peru reports September CPI data Tuesday. Headline is expected at 2.09% y/y vs. 2.03% in August. If so, it would be the first acceleration since June but would remain near the center of the 1-3% target range. At the last meeting September 12, the central bank cut rates 25 bp to 5.25% for the second straight meeting after keeping rates on hold in June and July. It said that the cut did not imply further cuts ahead but noted that it expected headline to remain within the target range and core to continue slowing. Next meeting is October 10 and another 25 bp cut to 5.0% seems likely.

EUROPE/MIDDLE EAST/AFRICA

Poland reports September CPI Monday. National Bank of Poland meets Wednesday and is expected to keep rates steady at 5.75%. Minutes to the September 4 meeting will be released Friday. At that meeting, the bank kept rates steady but Governor Glapinski softened his stance by noting a rate cut could happen after mid-2025 vs. 2026 previously. Other MPC members (Kotecki, Duda, Dabrowski, and Litwiniuk) also turned more dovish throughout September, with some arguing for the possibility of a March 2025 rate cut at the earliest. Kotecki and Wnorowski even suggested 100 bp of cuts over 2025 was likely. The swaps market is pricing in 125 bp of easing over the next 12 months.

Turkey reports September CPI data Thursday. Headline is expected at 48.30% y/y vs. 51.97% in August, while core is expected at 48.00% y/y vs. 51.56% in August. If so, headline would be the lowest since July 2023 but still well above the 3-7% target range. At the last meeting September 19, the central bank left rates steady at 50.0% but began setting the table for a rate cut by leaving out a previous pledge to hike rates further if needed. It also noted cooling domestic demand and expected services inflation to cool in Q4. Next meeting is October 17 and that seems too soon for a cut. Instead, we look for the first cut at the November 21 meeting.

ASIA

China reports official September PMIs Monday. Manufacturing is expected to rise three ticks to 49.4 and non-manufacturing is expected to rise a tick to 50.4. Caixin also reports its September PMIs Monday. Manufacturing is expected to rise a tick to 50.5 and services is expected to remain steady at 51.6. Over the weekend, Premier Li said that policymakers will study new incremental economic policies in a “timely manner” and suggests other measures will be forthcoming. While proposed stimulus measures have helped boost sentiment, we do not think they will have much material impact on the hard data.

Korea reports September trade data Tuesday. Exports are expected at 6.6% y/y vs. 11.2% in August, while imports are expected at 5.0% y/y vs. 6.0% in August. Such a sharp slowdown in export growth would be disappointing in light of low base effects from last year. September CPI will be reported Wednesday. Headline is expected to fall two ticks to 1.8% y/y and core is expected to fall a tick to 2.0% y/y. if so, it would be the lowest headline reading since February 2021. At the last meeting August 22, the Bank of Korea left rates steady at 3.5% but it was a dovish hold as the statement removed a previous phrase that it would keep rates steady “for a sufficient period of time.” Furthermore, Governor Rhee said that four BOK members were now open to cutting rates over the next three months, up from only two at the last meeting. Next meeting is October 11 and if disinflation continues, we expect a 25 bp cut then. Of note, the market is pricing in 75-100 bp of total easing over the next 12 months.

Indonesia reports September CPI data Tuesday. Headline is expected at 2.03% y/y vs. 2.02% in August, while core is expected at 2.00% y/y vs. 2.12% in August. At the last meeting September 18, Bank Indonesia began the easing cycle with a surprise 25 bp cut to 6.0%. Governor Warjiyo said that “Going forward, Bank Indonesia will continue to keep an eye on the room for lowering policy rate in line with low inflation forecast, the stable and appreciating rupiah, and the need to boost economic growth higher.” We think the strong rupiah was a big factor behind that cut and if it remains strong, BI will continue cutting rates cautiously. Next meeting is October 16 and another 25 bp cut to 5.75% seems likely.

Philippines reports September CPI data Friday. Headline is expected at 2.5% y/y vs. 3.3% in August. If so, it would be the lowest since October 2020 and nearing the bottom of the 2-4% target range. At the last meeting August 15, the central bank began the easing cycle with a 25 bp cut to 6.25%. Governor Remolona said then that “It’s one move. We may need further moves in the same direction” and added that another 25 bp cut was possible in either October or December. Next meeting is October 17 and another 25 bp cut is expected. The swaps market is pricing in 275 bp of total easing over the next 12 months that would see the policy rate bottom near 3.5%.

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