EM Preview for the week of September 12, 2021

September 12, 2021

After the post-jobs report sell-off, the dollar came roaring back. The dollar was up against every major currency last week, with NOK and JPY outperforming and AUD and CAD underperforming. The greenback did well against EM as well, with ZAR, IDR, MXN, CNY, and TWD the only ones able to eke out small gains. CLP, TRY, and PLN were the worst performers. This week, it will be up to the U.S. data to keep the dollar rally going.

AMERICAS

Colombia reports July manufacturing production and retail sales Wednesday. Production is expected to rise 15.6% y/y vs. 20.8% in June, while sales are expected to rise 23.5% y/y vs. 24.7% in June. Next central bank policy meeting is September 30 and the tightening cycle is expected to begin. At the July 30 meeting, rates were kept steady at 1.75% but the vote was split 5-2, with the dissents in favor of a 25 bp hike. Since then, inflation has risen to 3.97% y/y in July and 4.44% y/y in August, above the 2-4% target range.

EUROPE/MIDDLE EAST/AFRICA

Turkey reports July IP and current account data Monday. IP is expected to rise 15.2% y/y vs. 23.9% in June, while a deficit of mln is expected vs. -$1.13 bln in June. At this point, markets are solely focused on inflation and monetary policy for Turkey. CPI rose 19.25% y/y in August, the highest since April 2019 and further above the 3-7% target range. Governor Kavcioglu last week seemed to shift the bank’s targeting goals to core CPI rather than headline. Core inflation has fallen two straight months to 16.76%. While still too high, the bank seems to be lowering the bar for an eventual rate cut. Next policy meeting is September 23.

Israel reports Q2 GDP and current account data and August CPI Tuesday. Headline inflation is expected at 2.2% y/y vs. 1.9% in July. If so, it would be the highest since July 2013 and in the upper half of the 1-3% target range. Next central bank policy meeting is October 7 and rates are expected to remain steady at 0.10%. At the last meeting August 23, the bank said that the delta variant adds “a measure of uncertainty regarding economic activity in the short and medium terms.” As such, the bank said it “will therefore continue to conduct a very accommodative monetary policy for a prolonged time.” We believe policy is likely to remain steady well into 2022.

South Africa reports July retail sales Wednesday. Sales are expected to rise 3.3% y/y vs. 10.4% in June. The economy is softening even as price pressures remain relatively low, with headline CPI rising 4.6% y/y in July. As such, we expect steady rates from the SARB through year-end. Last week, SARB Governor Kganyago said that the 3-6% target range was not ideal and that it has entrenched higher inflation and inflation expectations. He added that he would prefer a point target of around 3% or 4%. Of note, National Treasury sets the inflation target in consultation with SARB and it’s not clear the government would go along with it. Why not? Because it would imply relatively tighter monetary policy going forward in order to achieve the lower target.

ASIA

India reports August CPI Monday. Inflation is expected at 5.60% y/y vs. 5.59% in July. If so, it would remain within the 2-6% target range, albeit in the upper half of that range. WPI will be reported Tuesday and is expected to rise 10.78% y/y vs. 11.16% in July. Price pressures appear to be easing but remain high enough to prevent any near-term easing by the RBI. Next policy meeting is October 8 and rates are likely to remain steady at 4.0%. If there is any easing to be done, we suspect it will be via continued QE. August trade data will be reported Wednesday.

China reports August retail sales and IP Wednesday. Sales are expected to rise 7.0% y/y vs. 8.5% in July, while IP is expected to rise 5.8% y/y vs. 6.4% in July. With the economy softening, we expect another RRR cut in the coming weeks. August new loan data was smaller than expected at CNY1.2 trln, suggesting that the last RRR cut is not filtering through yet. However, aggregate financing was slightly larger than expected at CNY2.96 trln, suggesting that the shadow banking sector may pick up some of the slack.

Singapore reports August trade data Friday. NODX are expected to rise 2.4% m/m vs. -0.9% in July. Regional trade and activity remain at risk from the slowdown in the mainland economy. As such, we expect the MAS to maintain its current accommodative stance at its next policy meeting in October. With the exception of Korea, most regional central banks are unlikely to tighten policy until 2022 at the earliest.

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