EM Preview for the week of September 19, 2021

September 19, 2021

EM FX is coming off a rough week as the dollar continues to build on its gains. It was up against every major currency last week and almost every EM currency as well. LP, RUB, and COP were the only exceptions and managed to eke out small gains last week. With the Fed expected to deliver another hawkish hold, we expect the dollar will continue to strengthen.

AMERICAS

Brazil COPOM meets Wednesday and is expected to hike rates 100 bp to 6.25%. The market is somewhat, with a few analysts calling for a 125 bp move. Dovish comments last week from BCB Governor Campos Neto have us looking for 100 bp. Mid-September IPCA inflation and August current account data will be reported Friday. Inflation is expected at 9.94% vs. 9.30% in mid-August. If so, it would be the highest since February 2016 and further above the 2.25-5.25% target band. This would also suggest another big hike at the next COPOM meeting October 27.

Mexico reports mid-September CPI Thursday. Headline inflation is expected at 5.72% y/y vs. 5.58% in mid-August. If so, it would be the first acceleration since April and further above the 2-4% target range. Next policy meeting is September 30 and rising inflation could force Banco de Mexico to continue tightening with another 25 bp hike to 4.75%.

EUROPE/MIDDLE EAST/AFRICA

Poland reports August PPI and IP Monday. PPI is expected to rise 9.3% y/y vs. 8.2% in July, while IP is expected to fall -1.1% m/m vs. -3.9% in July. Real retail sales and construction output will be reported Tuesday, with sales expected to fall -0.7% m/m vs. 2.1% in July. CPI rose 5.5% y/y in August, the highest since June 2001. Next policy meeting is October 6 and no change is expected despite rising inflation. At the last meeting September 8, the bank delivered a dovish hold by pledging to continue QE and warning of FX intervention. Governor Glapisnki said a rate hike now would be very risky and sees inflation falling from Q2 2022.

National Bank of Hungary meets Tuesday and is expected to hike rates 25 bp to 1.75%. The markets is split, however. Of the 15 analysts surveyed by Bloomberg, 1 sees no hike, 3 see 15 bp, 1 sees 20 bp, 4 see 25 bp, and 6 see 30 bp. So far during this tightening cycle, the central bank has hiked by 30 bp three straight meetings and so a 25 bp move would represent a slight slowing. CPI rose 4.9% y/y in August, the highest since June and further above the 2-4% target range. As such, we do not think the data warrant any slowdown in the tightening cycle yet.

Turkey central bank meets Thursday and is expected to keep rates steady at 19.0%. CPI rose 19.25% y/y in August, the highest since April 2019 and further above the 3-7% target range. Governor Kavcioglu recently hinted that the bank may start to pay more attention to core inflation, which has been moderating slightly to a still-high 16.76% y/y. A shift in regimes to justify an easing cycle would not be taken well by the markets.

South Africa reports August CPI Wednesday. Headline inflation is expected to pick up to 4.9% y/y vs. 4.6% in July. If so, it would be the highest since June but still within the 3-6% target range. Core is expected to remain steady at 3.0% y/y. SARB meets Thursday and is expected to keep rates steady at 3.5%. The economy remains soft and unemployment remains high, making it difficult to justify starting the tightening cycle. At its last meeting July 22, the bank delivered a dovish hold as its model showed only one hike this year vs. two previously. we think it will be hard pressed to deliver even one.

ASIA

Bank Indonesia meets Tuesday and is expected to keep rates steady at 3.5%. CPI rose 1.59% y/y in August, the highest since May but still well below the 2-4% target range. At the last meeting August 19, the bank delivered a dovish hold by signaling it would continue focusing on macroprudential measures to improve the transmission of its current accommodative policy stance. Bloomberg consensus sees steady rates through this year, with the first hike fully priced in by Q3 2022 and another hike by end-2022.

Korea reports trade data for the first twenty days of September Thursday. Exports rose 30.7% y/y in the first ten days of the month, while imports rose 60.6% y/y. With the mainland economy slowing, the regional exporters such as Korea are facing some downside risks in trade and activity. The key JPY/KRW cross has risen nearly 6% in H2, which should help Korean exports remain competitive.

Singapore reports August CPI Thursday. Headline inflation is expected to slow to 2.4% y/y vs. 2.5% in July. If so, it would be the first deceleration since last October. Core is expected to remain steady at 1.0% y/y. While the MAS does not have an explicit inflation target, falling price pressures should allow it to maintain its current accommodative stance at the next policy meeting in October. IP will be reported Friday and is expected to rise 4.6% m/m vs. -2.6% in July.

Philippine central bank meets Thursday and is expected to keep rates steady at 2.0%. CPI rose 4.9% y/y in August, the highest since December 2018 and further above the 2-4% target range. The bank delivered a dovish hold at the last policy meeting August 12. Governor Diokno focused on the downside risks stemming from mobility restrictions, stressing that the inflation and economic outlook “warrant keeping monetary settings in place.” He added that further headwinds could keep rates on hold longer or prompt the bank to reach deeper into its policy toolkit.

Taiwan central bank meets Thursday and is expected to keep rates steady at 1.125%. CPI rose 2.36% in August, the highest since May. The bank does not have an explicit inflation target and so it can maintain its current accommodative stance well into 2022 despite somewhat elevated price pressures. August export orders will be reported Friday and are expected to rise 20.4% y/y vs. 21.4% in July. If so, it would be the fourth straight month of deceleration and warns of slowing exports as we move into 2022.

Malaysia reports August CPI Friday. Headline inflation is expected to remain steady at 2.2% y/y. If so, it would remain at the lowest level since March. While Bank Negara does not have an explicit inflation target, falling price pressures should allow it to maintain its current accommodative stance well into 2022. Next policy meeting is November 3 and rates are expected to remain steady at1.75%. At the last meeting September 9, the bank was fairly upbeat as it noted that “Moving forward, the further easing of containment measures, rapid progress of the domestic vaccination program and continued expansion in global demand will support the growth momentum going into 2022.” We think the bar to further easing is pretty high.

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