The HSBC flash September China PMI on Tuesday is likely to be the major EM event. With iron ore prices already making cycle lows on Monday, we think that it will take a major upside surprise in the flash China PMI to turn around the growing negative EM sentiment.
It’s not just iron ore. Commodities in general are making new cycle lows, including Gold, Platinum, Soy, Wheat and Corn. Oil prices have stabilized, but remain near the cycle lows. For now, we expect EM to continue trading softly. There is a full slate of Fed speakers this week, with the Bloomberg count at 10. Markets remain nervous about Fed tightening, and we expect the Fed speakers to give a full range of views in these speeches. As such, we may not get any more clarity on potential tightening but we do continue to focus on mid-2015 as the most likely start.
HSBC flash reading for September China PMI will be reported Tuesday, expected at 50.0 vs. 50.2 final August reading. With data coming in on the weak side in August, we look for more targeted stimulus ahead. Liquidity issues are likely to remain in play ahead of the October national holidays, and so more liquidity adds by the PBOC are also likely to be seen. We do not, however, look for any large-scale stimulus measures.
Singapore reports August CPI Tuesday, expected at 1.1% y/y vs. 1.2% in July. It then reports August IP Friday, expected to rise 4.3% y/y vs. 3.3% in July. August and September data will be very important, as the MAS next meets sometime between October 9-14 (according to Bloomberg) to decide on policy. The economy has been losing some momentum, and we think there is a chance that the MAS loosens policy by moving to “zero” appreciation of the S$NEER band from the current stance of “modest and gradual” appreciation.
Taiwan reports August commercial sales and IP on Tuesday. Sales are expected to rise 3.05% y/y vs. 2.83% in July, while IP expected to rise 7.2% y/y vs. 6.1% in July. The central bank then meets Thursday and is expected to keep rates steady at 1.875%. The slowdown in mainland China is a concern for policymakers. Export orders were slightly weaker than expected in August, rising 5.2% y/y vs. 5.7% in July.
Poland reports August retail sales Tuesday, expected to rise 1.4% y/y vs. 2.1% in July. Minutes from the September meeting showed that a majority agreed that a rate cut was needed soon. We knew already that a rate cut was discussed at this early September meeting, and also knew that several rate cuts were discussed. With the data coming in so weak recently, we think that the easing cycle could resume at the October 8 meeting. Last move was a 25 bp cut back in July 2013.
Hungary central bank meets Tuesday and is expected to keep rates steady at 2.10%. For now, the central bank has signaled rates will remain steady but if the global growth outlook worsens, Hungary could start easing again. S&P just affirmed its BB rating with a stable outlook, so we see very little upgrade risk ahead.
Mexico reports July INEGI retail sales Tuesday, expected to rise 1.6% y/y vs. 1.1% in June. ANTAD sales were already reported at 1.2% y/y in July and 3.7% in August, so INEGI series should also show improvement. It then reports mid-September CPI Wednesday, seen rising 4.1% y/y vs. 4.08% in mid-August. Core is seen at 3.31% y/y vs. 3.34% in Mid-August. Banxico minutes last week saw a fairly upbeat economic assessment. While the case for lower rates is gone, we don't think there's much of a case for tightening being made. It did say it was monitoring US monetary policy, but we think any Banxico tightening will lag that of the Fed. August trade will be reported Friday.
Brazil reports August current account data Wednesday, expected at -$5.35 bln vs. -$6.02 bln in July. Slow growth has helped the external accounts improve. At -3.45% of GDP in July, the current account gap was the lowest since July 2013. With FDI inflows remaining strong, the reliance on hot money has been falling a bit. Brazil asset outlook would seem to be more dependent on politics than on economics for the next several weeks.
Czech central bank meets Thursday and is expected to keep policy steady. With the headwinds from the Eurozone and Russia growing, we think the time-frame for reversing stimulus will continue to be pushed out.
Turkish central bank meets Thursday and is expected to keep rates steady at 8.25%. Higher-than-expected inflation kept the bank on hold at its August meeting, which of course led to a steady chorus of complaints from the government. Inflation has moved even higher since the August 27 meeting, and should prevent a move this month too. If there is a surprise cut, it would be taken very badly by the markets and would smack of government interference.
Colombia central bank meets Friday and is expected to keep rates steady at 4.5%. A small minority of analysts see a 25 bp hike to 4.75%. However, minutes from the last meeting showed that some wanted steady policy while another said that the 25 bp hike it delivered should end the cycle. With lower commodity prices and previous tightening likely to push inflation down going forward, we think the tightening cycle is at an end in Colombia. However, the quest for a weaker peso will continue. Finance Minister Cardenas said recently that the weak peso will bring relief to exporters, and that he wouldn’t mind if it fell further.