Despite some positive developments last week, we think the three key issues for risk assets have not been resolved yet. Hong Kong protests continue, while reports suggest the US and China remain far apart. Even Brexit has likely been given only a three month reprieve. We remain negative on EM until these key issues have been ultimately resolved.
China reports August money and loan data this week but no data has been set. With the recently announced cuts in reserve requirements, money and loan growth should start to pick up in September. August CPI and PPI will be reported Tuesday, with the former expected to rise 2.6% y/y and the latter expected to fall -0.9% y/y. For now, the PBOC is focused on growth, not inflation.
Taiwan reports August trade Monday. Exports are expected to rise 0.9% y/y and imports by 0.2% y/y. Export orders continue to contract y/y, signaling little relief for exports over the next six months. With the economy remaining sluggish, the central bank should keep rates on hold well into 2020. Next policy meeting is September 19 and no change is expected then.
Mexico reports August CPI Monday, which is expected to rise 3.16% y/y vs. 3.78% in July. If so, inflation would be the lowest since October 2016 and nearing the 3% target. Next policy meeting is September 26 and another 25 bp cut to 7.75% is expected. July IP will be reported Wednesday, which is expected to contract -1.8% y/y vs. -2.9% in June.
Czech Republic reports August CPI Tuesday, which is expected to rise 2.8% y/y vs. 2.9% in July. If so, inflation would remain within the 1-3% target band. Next policy meeting is September 25 and no change is expected then.
Hungary reports August CPI Tuesday, which is expected at 3.2% y/y vs. 3.3% in July. If so, inflation would be the lowest since February and well within the 2-4% target range. Central bank minutes will be released Wednesday. Next policy meeting is September 24 and no change is expected then.
South Africa reports July manufacturing production Tuesday, which is expected to contract -1.7% y/y vs. -3.2% in June. The economy remains sluggish, while inflation is in the bottom half of the 3-6% target range. Next SARB meeting is September 19 and another 25 bp cut is expected then.
Malaysia reports July IP Wednesday, which is expected to rise 3.5% y/y vs. 3.9% in June. Bank Negara then meets Thursday and is expected to keep rates steady at 3.0%. However, a handful of analysts look for a 25 bp cut. We see a small chance of a dovish surprise this week.
Israel reports August trade Wednesday. Bank of Israel releases its minutes Thursday. It delivered a dovish hold then by eliminating language about further tightening. For now, the bank has moved to a neutral bias and it’s too early to talk about a possible rate cut. Next policy meeting is October 7 and no change is expected then.
Brazil reports July retail sales Wednesday and are expected to rise 1.6% y/y vs. -0.3% in June. The economy remains weak even as price pressures remain low. Next COPOM meeting is September 18 and another 50 bp cut to 5.5% is expected then.
National Bank of Poland meets Wednesday and is expected to keep rates steady at 1.5%. The bank has maintained its forward guidance of steady rates thought 2021, and we expect it to reaffirm it at this meeting. July current account and trade data will be reported Friday.
Turkey central bank meets Thursday and is expected to cut rates 275 bp to 17.0%. Market is all over the place, however, with analysts looking for cuts of 175, 225, 250, 275, 300, and 375 bp. July current account and IP will be reported Friday. With the lira remaining surprisingly firm, we suspect the bank may deliver a dovish surprise. However, we do not believe Erdogan’s professed plans for single digit interest rates and inflation will come to fruition anytime soon.
India reports August CPI and July IP Thursday. The former is expected to rise 3.35% y/y and the latter by 2.6% y/y. If so, inflation would remain in the bottom half of the 2-6% target range. Next RBI meeting is October 4 and another cut is likely. The last one was an unconventional 35 bp cut to 5.40%.
Argentina reports August CPI Thursday, which is expected to rise 55.4% y/y vs. 54.4% in July. Given the peso’s 26% drop last month, we see upside risks to inflation. For now, capital controls have helped the peso stabilize, but this not sustainable. All eyes are on the October elections now.
Peru central bank meets Thursday and is expected to keep rates steady at 2.5%. Most central banks in the region have started cutting rates. At some point, Peru is likely to follow suit but we think it is too early now.
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