Emerging markets ended the week on a soft note. Volatility is likely to remain high as markets are jittery and choppy ahead of the BOJ/FOMC meetings on Thursday. Dollar gains were broad-based last week, but EM certainly underperformed. China markets will reopen after a two-day holiday, but good news out of the mainland is doing little to help EM.
Oil prices continue to slide.
MXN is likely to be a focal point this week after plunging to record lows Friday. Markets were thin with Mexico on holiday, and we warn of potential Banxico FX intervention this week if peso weakness persists. Central bank meetings in Indonesia and Turkey this week will be of interest with potential easing seen, while meetings in Hungary, South Africa, and the Philippines should see steady policy.
Brazil reports July GDP proxy Monday, which is expected at -4.2% y/y vs. -3.1% in June. The economy is bottoming, but a recovery remains elusive. Mid-September IPCA inflation will be reported Thursday, which is expected to remain steady at 8.95%. Inflation remains stubbornly high, and above the 3-7% target range since. The next COPOM meeting is October 19. If price pressures do not ease more, a rate cut then will be difficult to justify. August tax collections should be reported sometime this week.
Poland reports August retail sales, industrial and construction output, and PPI Monday. Most see a bounce-back from July weakness. July real sector data came in weaker than expected, and so the August readings will be very important in order to determine if the slowing trend is significant. The central bank releases its minutes Thursday. For now, the central bank is on hold but we think it would tilt more dovish if the outlook worsens. CPI came in at -0.8% y/y in August.
Hungarian central bank meets Tuesday and is expected to keep rates steady at 0.90%. CPI came in at -0.1% y/y in August, even as July real sector data (retail sales, IP, etc) have come in much weaker than expected. While the central bank feels that it has completed the rate cut cycle, we think some further unconventional measures are possible if the data continue to come in weak.
