Despite the bounce Friday, most of EM FX was lower last week as dollar strength continued apace. COP , ZAR, CNY, and TRY were the notable outperformers and gained modestly last week, while MXN, CLP HUF, and THB were the worst performers and all down over 1% against the dollar. The Fed is likely to continue its inexorable march towards tapering but this Friday’s jobs report will be key in advancing this narrative. The U.S. 10-year yield peaked at 1.57% last week before ending the week near 1.46%. If yields resume their rise this week, EM is likely to remain under pressure.
Colombia central bank releases its minutes Monday. Last week, the bank started the tightening cycle with a 25 bp hike to 2.0%. The vote was split 4-3, with the dissents in favor of a 50 bp hike. September CPI will also be released that day. Headline inflation is expected at 4.47% y/y vs. 4.44% in August. If so, it would be the highest since April 2017 and further above the 2-4% target range. Next policy meeting is October 29 and another 25 bp hike to 2.25% seems likely. However, we cannot rule out a 50 bp hike after last week’s decision.
Brazil reports August IP Tuesday. Retail sales will be reported Wednesday and are expected to rise 0.6% m/m vs. 1.2% in July. September IPCA inflation will be reported Friday, with headline inflation expected at 10.33% y/y vs. 9.68% in August. If so, it would be the highest since February 2016 and further above the 2.25-5.25% target range. COPOM delivered a 100 bp hike to 6.25% September 22 and pledged a hike of similar magnitude at the next meeting October 27.
Chile reports September trade data Thursday. CPI will be reported Friday, with headline expected to pick up a tick to 4.9% y/y. If so, it would be the highest since August 2015 and further above the 2-4% target range. At the last policy meeting, the central bank surprised markets with a 75 bp hike to 1.5% rather than the expected 50 bp. Next policy meeting is October 13 and a 50-75 bp hike is expected.
Mexico reports September CPI Thursday. Headline inflation is expected at 6.00% y/y vs. 5.59% in August. If so, it would be the highest since April and further above the 2-4% target range. Last week, Banco de Mexico hiked rates 25 bp for the third straight meeting to 4.75% and left the door open for further hikes. The vote was 4-1, with the lone dissent in favor of steady rates. Next policy meeting is November 11 and another 25 bp hike to 5.0% seems likely.
Peru central bank meets Thursday and is expected to hike rates. The market is split between a 25 bp and 50 bp move. The bank unexpectedly started the tightening cycle with a 25 bp hike to 0.5% August 12, then followed that with a 50 bp hike to 1.0% September 9. Last week, September headline inflation came in at 5.23% y/y vs. 4.83% expected and 4.95% in August. This was the highest since February 2009 and further above the 1-3% target range. As such, we lean towards a 50 bp hike to 1.5% this week.
Turkey reports September CPI Monday. Headline inflation is expected at 19.65% y/y vs. 19.25% in August, while core inflation is expected at 16.62% y/y vs. 16.76% in August. If so, headline inflation would be the highest since March 2019 and further above the 3-7% target range. Core bears watching, however, as central bank Governor Kavcioglu hinted that it is tilting towards basing inflation on that rather than headline. At the last policy meeting, the central bank surprised markets with a 100 bp cut to 18.0%. Next policy meeting is October 21 and another cut then seems likely.
Hungary reports August retail sales and IP Wednesday. Both are expected to slow from July. Central bank minutes will be released that same day. At that meeting, the bank hiked rates by 15 bp to 1.65% rather than the expected 25 bp. Next policy meeting is October 19 and another 15-25 hike is expected then. September CPI and August trade data will be reported Friday. Headline inflation is expected at 5.6% y/y vs. 4.9% in August. If so, headline inflation would be the highest since October 2012 and further above the 2-4% target range.
Russia reports September CPI Wednesday. Headline inflation is expected at 7.3% y/y vs. 6.7% in August, while core inflation is expected at 7.3% y/y vs. 7.1% in August. If so, headline inflation would be the highest since June 2016 and further above the 4% target. At the last policy meeting, the central bank hiked rates by 25 bp to 6.75% rather than the expected 50 bp. Next meeting is October 22 and it is expected to hike rates 25 bp to 7.0%.
National Bank of Poland meets Wednesday and is expected to keep rates steady at 0.10%. Last week, September headline inflation came in at 5.8% y/y vs. 5.5% expected and actual in August. This was the highest since June 2001 and further above the 1.5-3.5% target range. Yet the bank remains ultra-dovish. Minutes to the September 8 meeting will be released Friday and are expected to be very dovish. Some bank officials have pointed to the November meeting as key for policy, as new macro forecasts will be released then.
Bank of Israel meets Thursday and is expected to keep rates steady at 0.10%. CPI rose 2.2% y/y in August, the highest since July 2013 and in the upper half of the 1-3% target range. At the last meeting August 23, the bank delivered a dovish hold, warning that the delta variant adds “a measure of uncertainty regarding economic activity in the short and medium terms” and it “will therefore continue to conduct a very accommodative monetary policy for a prolonged time.” We believe that its FX intervention and bond-buying programs are likely to remain in place well into 2022.
Singapore reports advance Q3 GDP data sometime this week. Growth is expected at 1.0% q/q vs. -1.8% q/q in Q2. The MAS typically meets the same day. With virus numbers still rising to record levels, the government just tightened movement restrictions. As such, the economic outlook remains cloudy and so we expect the MAS to maintain its current accommodative stance at its semiannual policy meeting. Press reports suggests a perceived split in government policy, with Finance Minister Won favoring tighter restrictions and Health Minister Ong favoring reopening the economy faster. Both are seen as potential candidates to take over the PAP leadership when Prime Minster Lee eventually steps down. August retail sales will be reported Tuesday.
Korea reports September CPI Tuesday. Headline inflation is expected at 2.4% y/y vs. 2.6% in August. The Bank of Korea just started a tightening cycle with a 25 bp hike to 0.75% August 26. Next policy meeting is October 12 and rates are expected to remain steady at 0.75% as back-to-back hikes seem unlikely given falling inflation and growing headwinds to the economy. Still, Governor Lee stressed that a gradual tightening cycle was needed to curb accumulated financial imbalances. Bloomberg consensus sees another 25 bp hike in Q1 and another one in Q3. August current account data will be reported Thursday.
Philippines reports September CPI Tuesday. Headline inflation is expected at 5.1% y/y vs. 4.9% in August. If so, it would be the highest since December 2018 and further above the 2-4% target range. Next policy meeting is November 18 and rates are expected to remain steady at 2.0%. At the last policy meeting September 23, the bank revised its inflation forecast up by 0.3 ppt to 4.4% for the year, and slightly increased the forecasts for the next two subsequent years. However, Governor Diokno sounded a dovish note as he said “The outlook for recovery continues to hinge on timely measures to prevent deeper negative effects on the Philippine economy. Together with appropriate fiscal and health interventions, keeping a steady hand on the BSP’s policy levers will allow the momentum of economic recovery to gain more traction by helping boost domestic demand and market confidence.”
Thailand reports September CPI Tuesday. Headline inflation is expected at 0.60% y/y vs. -0.02% in August. If so, it would be the highest since June but still well below the 1-3% target range. Next policy meeting is November 10. At the policy meeting last week, the delivered a slightly more hawkish hold. The decision was unanimous and was a noteworthy shift from the last meeting August 4, when it was a 4-2 vote with the two dissents in favor of a 25 bp cut. We expect rates are likely to remain on hold through 2022, with risks of further backdoor easing via macroprudential measures. After the reversal of the August dissents, it seems that the bar to an outright rate cut remains high.
China is on an extended holiday until markets reopen Friday. We suspect policymakers are using this time to try and come up with a palatable solution to the Evergrande saga. China reports September foreign reserves data towards the end of the week. Caixin reports September services and composite PMI readings Friday, with services expected at 49.2 vs. 46.7 in August. Last week, Caixin’s manufacturing PMI came in at 50.0 vs. 49.5 expected and 49.2 in August. Of note, the official PMI readings came in mixed, with manufacturing falling to 49.6 from 50.1 in August and non-manufacturing rising to 53.2 from 47.5 in August, pulling the composite PMI up to 51.7 from 48.9 in August.
Reserve Bank of India meets Friday and is expected to keep rates steady at 4.0%. CPI rose 5.3% y/y in August, the lowest since April but still in the upper half of the 2-6% target range. At the last meeting ,the bank delivered a dovish hold. The vote was 5-1, with the dissent in favor of hiking rates. Governor Das said the bank is focused on supporting the economy as it recovers from the pandemic, noting “The supply-side drivers could be transitory while demand-pull pressures remain inert, given the slack in the economy. A pre-emptive monetary policy response at this stage may kill the nascent and hesitant recovery that is trying to secure a foothold in extremely difficult conditions.”