Emerging Market Preview: Week Ahead

EM ended the week on a soft note, as markets were taken off guard by news that the FBI was reopening its investigation of Hillary Clinton’s emails. Risk off trading hit MXN particularly hard. FOMC meeting this week should be a non-event, but markets are likely to remain volatile ahead of the November 8 elections in the US.

Individual country risk remains important. Brazil budget data is likely to provide a reminder of how bad fundamentals remain. China PMI readings will provide the first snapshot of the mainland economy in Q4, though markets remain fairly comfortable with yuan weakness. Turkey is expected to report a higher inflation print, which comes even as the lira trades at record lows. Lastly, Mexico is expected to report a weak Q3 GDP reading, and sentiment is likely to remain vulnerable.

Korea reports September IP Monday, which is expected at -1.1% y/y vs. +2.3% in August. Korea reports October CPI Tuesday, which is expected to rise 1.0% y/y vs. 1.2% in September. Korea also reports October trade and September current account data Tuesday. Exports are seen at -3.0% y/y and imports at -4.5% y/y.

Thailand reports September manufacturing production, trade, and current account Monday. It reports October CPI Tuesday, which is expected to remain steady at 0.4% y/y. Low base effects from last year should see rising inflation in the next couple of months. However, it should remain in the low end of the 1-4% target range next year. Next central bank meeting is November 9, no change in policy seen.

South Africa reports September M3 and private sector credit growth Monday. The former is expected to rise 5.5% y/y, while the latter is expected to rise 5.95% y/y. It also reports September trade Monday. The economy remains sluggish, but inflation remain elevated and will prevent any near-term easing by the SARB. Next policy meeting is November 24. While a lot can happen between now and then, our base case is for no changes then.

Turkey reports September trade Monday, which is expected at -$4.4 bln vs. -$4.7 bln in August. October CPI will be reported Thursday, which is expected to rise 7.4% y/y vs. 7.3% in September. S&P is scheduled to release a ratings decision on Turkey Friday. This agency was the first to downgrade Turkey after the coup to BB with a negative outlook, but it seems too soon for another cut. However, Fitch’s BBB- is overdue for a downgrade.

Brazil reports September consolidated budget data Monday. The primary deficit is expected at -BRL25.3 bln. September IP and October trade will be reported Tuesday. IP is seen at -5.0% y/y vs. -5.2% in August. The recession continues, making it harder to address the budget gap. The central bank’s easing cycle is likely to remain cautious, and so the headwinds on the economy are likely to remain significant.

Poland reports October CPI Monday, which is expected at -0.3% y/y vs. -0.5% in September. This would be the slowest rate of deflation since September 2014. Low base effects from last year should see a return to outright inflation in the next couple of months, while the real sector remains fairly robust. No wonder the central bank is reluctant to ease further. Next policy meeting is November 9, no changes seen then.

Mexico reports Q3 GDP Monday, which is expected to rise 1.9% y/y vs. 2.5% in Q2. If so, this would be the slowest rate since Q2 2014. Policymakers have enacted both fiscal and monetary tightening this year, which means that the headwinds remain significant. As such, we believe Banco de Mexico remains reluctant to hike rates further. Next policy meeting is November 17, no changes seen then.

Colombia reports October CPI Saturday, which is expected to rise 6.7% y/y vs. 7.3% in September. This would still above the 2-4% target range, but it would be the lowest rate since November 2015. Easing is most likely a 2017 story. The central bank moved its policy meeting to last Friday from Monday originally and kept rates steady at 7.75%, as expected.

China reports official and Caixin October manufacturing PMI Tuesday. The former is expected at 50.3 vs. 50.4 in September, while the latter is expected to remain steady at 50.1. This will be the first snapshots of the mainland economy in Q4, which finished Q3 on a firm note. For now, markets seem comfortable with steady yuan weakness.

Czech central bank meets Thursday and is expected to keep policy unchanged. CPI rose 0.5% y/y in September, and low base effects from last year should see inflation move back into the 1-3% target range in the next few months. The central bank has sounded more confident that it does not need to adjust policy or forward guidance any further. Currently, it sees unconventional measures staying in place until around mid-2017.

Philippines reports October CPI Friday, which is expected to remain steady at 2.3% y/y. Price pressures have been creeping higher. Taken in conjunction with the softer peso, we believe the central bank’s easing cycle is on hold indefinitely. Next policy meeting is November 10, no changes seen then.

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