EM FX was whipsawed last week but ended on a firm note. We look past the noise and believe that the true signals for EM remain higher US interest rates and continued trade tensions, both of which are negative. Turkish markets reopen after a week off. Nothing fundamentally has changed there, and so it still poses some spillover risk to wider EM.
Mexico reports July trade Monday, which is expected at -$1.7 billion. Banco de Mexico releases its quarterly inflation report Wednesday. Inflation was a higher than expected 4.81% y/y in mid-August, still above the 2-4% target range. The next policy meeting is October 4, and much will depend on the global backdrop then. If the peso comes under greater pressure, another hike becomes likely in Q4.
Brazil reports July current account and FDI data Monday. A current account gap of -$3.8 billion is expected. July PPI will be reported Wednesday. Central government budget data and IGP-M wholesale inflation will be reported Thursday. Q2 GDP and consolidated budget data will be reported Friday, with growth expected at 1.1% y/y vs. 1.2% in Q1. The next COPOM meeting is September 19, and markets are pricing in the start of the tightening cycle than with a 25 bp hike to 6.75%.
Turkey reports July trade Wednesday. The lira was relatively stable last week due to the long holiday, but the lira remains vulnerable as markets reopen this week. The next policy meeting is September 13, and further tightening should be seen then. Much will depend on external conditions and the lira.
Bank of Israel meets Wednesday and is expected to keep rates steady at 0.1%. CPI rose 1.4% y/y in July, the highest since January 2014. PPI rose 5.7% y/y in June, the highest since November 2012 and pointing to building price pressures. The market is starting to price in the start of the tightening cycle in Q1, but we think Q4 is possible after the new central bank governor takes over in November.
