Stock Markets EM FX gained a little traction on Friday, but capped a week of steady losses. As the US election and FOMC meeting next month get closer, we believe markets and risk appetite will remain volatile. So far, September data from the US does not suggest any urgency to hike in November, and so we continue to believe that December is most likely for another hike. Looking at individual countries, South Africa political risk remains high as the feud between Gordhan and Zuma plays out. The Turkish central bank meets, and any jawboning by the government could weigh on the lira. On the other hand, Brazil is likely to continue outperforming, as COPOM is likely to follow up recent fiscal consolidation efforts with the first rate cut of this cycle. Brazil Brazil reports August retail sales Tuesday. COPOM then meets Wednesday and is expected to cut rates 25 bp to 14.0%. Mid-October IPCA inflation will be reported Friday, which is expected to rise 8.3% y/y vs. 8.78% in mid-September. Last week’s cut in fuel prices won’t show up yet, but does suggest falling price pressures ahead. Along with progress on the government spending cap bill, we think developments support a potential 50 bp cut this week. Colombia Colombia reports August retail sales and IP Tuesday. The former is expected at –0.
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Brazil
Colombia
Colombia reports August retail sales and IP Tuesday. The former is expected at –0.5% y/y and the latter at +3.0% y/y. The economy has softened from both fiscal and monetary tightening, but the recent bounce in oil prices (if sustained) will help boost growth. Inflation peaked and has fallen to 7.3% y/y in September. This is the lowest since December, but remains above the 2-4% target range. We think easing is unlikely until we are well into 2017.