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EM, FOMC decision, Week Ahead, Preview, Emerging Markets, fx trader, forex

26 Sep 2016

EM initially benefitted from the FOMC decision, but softened into the weekend. One culprit was lower oil prices, as reports suggest an output deal is unlikely at the OPEC meeting this week in Algeria. But it wasn’t just EM, as the greenback closed firmer against the majors as well. We still believe that risk and EM should do fine over the next few weeks, as the Fed basically set a two-month window of steady rates.

Looking at individual country risk, a cabinet shuffle in Poland is a good reminder about political risk.  Israeli, Czech, and Colombian central banks are all expected to stand pat. China provides its first snapshot of its manufacturing sector this week with PMI readings, while Korea will give the first reading for trade next weekend.  Moody’s downgrade of Turkey to Ba1 is a reminder that country-specific risk remains in play.

Singapore reports August IP Monday, which is expected to rise 0.5% y/y vs. -3.6% in July. August CPI came in at -0.3% y/y vs. -0.4% expected. This is the lowest rate of deflation since June 2015, and could move into positive territory by year-end. Trade and retail sales data came in stronger than expected last week.  It’s a tough call for the MAS meeting next month. No move is likely then in light of improved data, but we see a very small chance of a dovish surprise.

Bank of Israel meets Monday and is expected to keep rates steady at 0.10%. Deflation is persistent, but the central bank does not seem compelled to move into unconventional measures given current conditions. The economy remains fairly robust, with GDP growing 4% annualized in Q2.

Mexico reports July GDP proxy Monday, which is expected to rise 2.05% y/y vs. 2.22% in June. It reports August trade Tuesday. Banco de Mexico meets Thursday and is expected to keep rates steady at 4.25%.  Let's see how the peso (and EM) trades ahead of the meeting, but we think a hawkish surprise is likely.  Still, we’re in favor of a smaller hike (25 bp) rather than a bigger one (50 bp).