Turkey's inflation to trade worries, factors that will drive EMs this week

A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul | Photo: Reuters
Events are likely to unfold quickly for emerging markets this week following the battering some currencies suffered in August.

Monday alone sees the release of Turkish inflation data and the unveiling of a new fiscal plan in Argentina. Meanwhile, Brazil will remain on tenterhooks after the country’s top electoral court banned imprisoned Luiz Inacio Lula da Silva -- who was leading in the polls -- from running in October’s presidential elections.

“The countries with the most acute macro imbalances are suffering the most pain given the challenging external environment,” said Paul Greer, a London-based money manager at Fidelity International, which oversees about $417 billion of assets. “Investors remain concerned about the potential for EM fund outflows following the sharp drawdowns on total returns during August, especially in local-currency markets.”

To add to the jittery backdrop, the US is leaning toward slapping fresh tariffs on Chinese imports as early as this week, affecting a further $200 billion of goods. The yuan, which has lost more than 6 per cent against the dollar in the past three months, would extend its decline if Beijing retaliates, according to Natwest.

Traders can also look forward to purchasing managers’ indexes from across emerging markets as well as Chinese trade statistics. All that before Friday’s US monthly payrolls data, which could be key to determining where the dollar heads after it touched a 14-month high in August.

Turkey’s runaway inflation
  • Turkey’s inflation probably accelerated to 17.6 per cent in August, according to the median of economist forecasts compiled by Bloomberg; the central bank meets next on Sept. 13
  • The lira suffered its biggest monthly drop in August since February 2001, when the country abandoned exchange controls and allowed the currency to float amid an economic crisis
  • Brazil’s inflation data is also due, in the last such release before the central bank’s next monetary policy meeting. Markets are pricing the first rate increase in three years, a step that could help to stem losses in the real
  • Inflation figures will be reported by Thailand and Indonesia on Monday and the Philippines on Wednesday. The latter will be the most important as signs of price pressures will keep the central bank on its toes, according to ING Groep NV

Brazil jitters
  • Brazil’s most unpredictable election in decades will further weigh on the outlook for emerging markets now that political campaigning on radio and TV has started, Fidelity International’s Greer said
  • “Brazil has an outsized fiscal deficit, has failed to deliver a reform agenda and is facing challenging elections in October, for which it is difficult to envisage a benign outcome,” he said

Argentine angst
  • Treasury Minister Nicolas Dujovne will unveil a new fiscal plan on Monday and will then travel to Washington to meet with International Monetary Fund officials to ask for cash from a $50 billion credit line to be released more quickly
  • Tax revenue figures are due in Argentina Monday. The report should provide clues as to whether the nation can reach crucial fiscal targets tied to a credit line from the IMF
  • Also due this week: Data on industrial production and construction activity, which will help paint an updated picture on how severe Argentina’s recession will be this year
  • Argentina’s credit rating may be cut deeper into junk by S&P amid a plunge in the peso and a bailout by the IMF
  • The peso has slumped 50 per cent this year, the worst performer among peers; the central bank raised its benchmark interest rate to 60 per cent on Thursday
  • At around 38 per dollar, Goldman Sachs says it sees an “attractive valuation buffer having built up in the peso. If coupled with decisive fiscal actions, the carry/value proposition could translate into a significant total return from current levels”

Central banks decide
  • Policy makers at Bank Negara Malaysia are expected to keep the overnight policy rate at 3.25 per cent on Wednesday. Governor Nor Shamsiah Mohd Yunus has ample room to keep policy unchanged, despite an emerging-market sell-off that’s forced her counterparts in Indonesia and the Philippines to take more aggressive steps to defend their currencies. The inflation outlook remains benign in Malaysia after the government scrapped a consumption tax, while economic growth may ease as Prime Minister Mahathir Mohamad cuts back on spending to rein in government debt
  • Poland’s central bank holds its first interest-rate meeting since the August break, with traders predicting policy makers will reiterate their no-change stance. Meanwhile, the ‘Polish Davos,’ a key economic forum, takes place in Krynica, attended by government officials and dozens of company representatives
  • Kazakhstan, Chile, Ukraine and Serbia will also hold monetary-policy meetings

Trade worries

  • A resolution may be close over replacing Nafta; the White House said it told Congress it intends to sign a trade pact with Mexico, leaving the option of Canada joining the pact “if it is willing” once negotiations restart. President Donald Trump also slammed Canada for what he called “decades of abuse,” with a new threat to terminate Nafta
  • Mexico’s incoming Deputy Finance Minister Gerardo Esquivel and Banxico Deputy Governor Irene Espinosa are among speakers at a Moody’s conference on Monday. Investors will be seeking clues about the recently negotiated preliminary US-Mexico trade deal, which provided a temporary boost for the peso last week. It’s the world’s top-performing major currency this year, despite slipping in August
  • Current Mexican Economy Minister Ildefonso Guajardo and incoming Economy Minister Graciela Marquez speak on Thursday at an annual conference sponsored by The Economist. Again, the focus will be on trade and its impact on Mexican financial assets

Economic data
  • A flurry of trade figures will be closely watched for the impact of the escalating trade tensions between the US and China. They include Taiwan’s on Friday and China’s on Saturday
  • A private measure on China’s manufacturing activity is due Monday
  • Foreign-exchange reserves data will be unveiled by China, South Korea, Malaysia, Thailand, Philippines and Indonesia
  • Investors will know whether South Africa has entered a technical recession on Tuesday, when GDP figures for the second quarter are published. The economy shrank 2.2 per cent quarter-on-quarter in the first three months of the year. London-based Capital Economics says there’s a “serious risk” output fell again between April and June
  • The rand was the worst-performing emerging-market currency after the lira and Argentine peso last month
  • South Korea will report its final GDP figures for the second quarter on Tuesday
  • Economists expect the August US jobs report to show employers added 193,000 positions, while the unemployment rate fell to 3.8 per cent, matching the lowest since 1969