EM Preview for the Week Ahead

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Win Thin
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EM has been on a good run but this week will be a big test.  Brexit uncertainty may finally end.  Or it may not.  A delay would be positive for EM, whilst a potential hard Brexit would be negative.  The Fed meets Wednesday and key US data will be reported during the week, culminating with the jobs report Friday.  The dollar has been on its back foot as September data have come in weaker than expected, so any sort of positive data surprises this week could add to the dollar’s recent gains. 

AMERICAS

Mexico reports September trade Monday, where a $213 mln surplus is expected.  Q3 GDP will be reported Wednesday, and growth is expected at 0.1% y/y vs. -0.8% in Q2.  October PMI readings will be reported Friday, with manufacturing expected to fall a few ticks to 47.7 and non-manufacturing expected to fall a tick to 48.0.  With growth sluggish and inflation falling, Banco de Mexico is likely to continue easing.  Next policy meeting is November 14 and a 25 bp cut to 7.5% seems likely.

Chile reports September manufacturing production and unemployment Wednesday.  Manufacturing is expected to rise 3.2% y/y vs. -1.5% in August, while the unemployment rate is expected to drop a couple of ticks to 7.0%.  The central bank cut rates 25 bp to 1.75% last week and kept its easing bias, noting that recent protests will affect the economy.  Next policy meeting is December 6 and another 25 bp cut to 1.5% seems likely. Elsewhere, President Pinera has asked all his ministers to step down as he seeks to create a new one to meet “new demands.”

Brazil COPOM meets Wednesday and is expected to cut rates 50 bp to 5.0%.  IPCA inflation was 2.72% in mid-October, below the 2.75-5.75% target range.  Central government budget data will also be reported Wednesday, where a -BRL23.1 bln primary deficit is expected.  Consolidated budget data will be reported Thursday, where a -BRL24.2 bln primary deficit is expected.  September IP and October trade will be reported Friday.

Colombia central bank meets Thursday and is expected to keep rates steady at 4.25%.  CPI rose 3.8% y/y in September, near the top of the 2-4% target range.  However, falling oil prices remain a headwind on the economy.

EUROPE/MIDDLE EAST/AFRICA

South Africa reports September money and credit data and Q3 unemployment Tuesday.  Unemployment is expected to remain steady at 29.0%, and underscores why policymakers need to boost growth.  Trade and PPI will be reported Thursday, with the latter expected to ease a couple of ticks to 4.3% y/y.  The economy remains weak even as price pressures continue to fall.  Next SARB meeting is November 21 and a 25 bp cut to 6.25% seems likely.

Turkey reports September trade Thursday, where a -$2.0 bln deficit is expected.  The central bank also releases its quarterly inflation report that day.  In the last report released July 31, the central bank’s inflation forecasts for end-2019, end-2020, and end-2012 were 13.9%, 8.2%, and 5.4%, respectively.  The new inflation forecasts are likely to be revised down sharply.  Exactly how much lower could provide some clues to monetary policy going forward, as we believe Erdogan would like zero real rates to boost the economy.  Market reaction to aggressive rates cuts have up until now has been muted but this will surely be tested.

Poland reports October CPI Thursday, which is expected to rise 2.5% y/y vs. 2.6% in September.  If so, this would be the lowest since May and back at the center of the 1.5-3.5% target range.  This should allow the central bank to keep rates on hold for the foreseeable future.  Next policy meeting is November 6 and no change is expected then.

ASIA

Korea reports September IP Thursday, which is expected to contract -1.2% y/y vs. -2.9% in August.  October CPI and trade will be reported Friday.  CPI is expected to fall -0.3% y/y vs. -0.4% in September, while exports are expected to contract -13.8% y/y and imports by -13.2% y/y.  BOK just cut rates 25 bp to 1.25% this month.  Next policy meeting is November 28 and further easing then is possible.

China reports official October PMIs Thursday.  Manufacturing is expected to remain steady at 49.8, while non-manufacturing is expected to remain steady 53.7.  Caixin reports its China manufacturing PMI Friday and it is expected to fall to 51.0 from 51.4 in September.  Overall, the economy is showing signs of stabilizing but we are far from seeing much improvement until the trade war ends.  Yet the PBOC has signaled that it prefers not to cut policy rates aggressively, relying instead on targeted measures.

Hong Kong reports Q3 GDP Thursday.  It is expected to contract -0.6% q/q and -0.3% y/y.  September retail sales will be reported Friday, which are expected to contract -24.1% y/y vs. -23.0% in August.  The protests and trade war continue to take a toll on the economy, and we see little relief in sight.  Another Fed rate cut would help at the margin but this is unlikely to offset the other strong headwinds on the economy.

Indonesia reports October CPI Friday, which is expected to rise 3.3% y/y vs. 3.4% in September.  If so, it would be the lowest since June and slightly below the 3.5% target.  Bank Indonesia has cut rates four times this year and is likely to continue doing so in order to boost the sluggish economy.  Next policy meeting is November 21 and another 25 bp cut to 4.75% seems likely.

Thailand reports October CPI Friday, which is expected to rise 0.34% y/y vs. 0.32% in September.  If so, inflation would remain well below the 1-4% target range.  BOT surprised markets with a 25 bp cut to 1.5% in August but then kept rates steady in September.  Next policy meeting is November 6 and another 25 bp cut seems likely then.